After a traumatic four years marked by a recession, a war on terrorism and a market decline, many advisors are rethinking their retirement planning strategies.
The heightened threat of terrorism, war and one of the most dramatic riches-to-rags collapses in Wall Street history are plenty of reasons to feel anxious about the future. But when you're a financial advisor-and your job is to enable clients to weather unforeseen turmoil from now until their dying day-there's even more cause for reflection.
So it is that many advisors are looking back on the events of the past four years, weighing what went right and what went wrong in the strategies they used to guide their clients into a financially sound retirement, and deciding whether or not changes are needed.
For some advisors, the trauma of the past few years has led to a new conservatism. Others have just tweaked their approaches, while some are standing their ground with the conviction that their methods handily withstood all the adversity.
Yet there are few advisors who would deny that things have changed. For one thing, they say, hardly any of their clients take retirement for granted anymore.
It's also the case that retirement planning is no longer just a matter of configuring dollars and cents on a spreadsheet. The world's too complicated for that to be the case any more, says Joel Ticknor, owner of Ticknor Financial Inc. in Reston, Va. "I find that even clients who are patently able to support any lifestyle they wish still worry about retirement," Ticknor says. "They just want psychological assurance they can do it. I think it's more a question of dealing with uncertainty at a time when the world has arguably gotten more complex."
That, in the end, is a positive development because it leads to stronger relationships between advisors and their clients, Ticknor says.
In his firm, for example, Ticknor says the events of the last few years have underscored the need to align clients with the proper amount of risk they're able to endure. "The key role that we advisors play with our clients is to control their risk," he says. "By that I mean deciding how much returns they need to meet their retirement expectations and controlling the risk without the portfolio blowing up on them."
This, coupled with forecasts of modest market returns for the near future, has resulted in Ticknor becoming more inclined to devote a larger portion of his clients' portfolios to low-risk vehicles with a real rate of return. TIPS (Treasury Inflation-Protected Securities) have often been used in this role. So have dividend-paying assets-Ticknor likes preferred stocks-and other equities with a tilt toward value.
On average, his portfolios have gone from an 80%-20% equity-to-fixed ratio, to 75%-25%. The greater emphasis on low-risk, fixed-income vehicles has come at the expense of growth equities. "I want to make sure they have enough things in their portfolio that are going to keep them whole and on track," he says.
Ticknor's clients have an average net worth of about $2 million, but he also does pro bono work for a local credit union and finds that the majority of workers-those not working with advisors and who manage their own 401ks-have a tougher road ahead. "The real problem here is that as we went away from defined benefits, we basically said to each worker, 'You are now in charge of your future,'" he says. "The vast majority haven't the faintest idea of what to do."