Ensuring that baby boomer clients have the proper portfolio balance may be the biggest and most critical challenge facing financial advisors over the next 10 years, said a panel of fund researchers at the opening of Morningstar's Chicago investment conference Wednesday.
Scott Burns, director of exchange-traded, closed-end and alternative research for Morningstar, said at the opening fund research round table discussion that baby boomers retiring now face the toughest challenges because investment returns are far too volatile for the transition they are making. But investors can also make their own meltdowns by choosing the wrong investments at the wrong time--when an asset's peak return period has already passed. That means they tend to choose investment themes that throw their allocation out of balance. "We see investors tend to buy asset classes particularly at the wrong time," he said.
The irony, he said, is that client-investors tend to buy good products. "They're not making mistakes at the fund selection choice," he said. "They buy asset classes after they've done well and then they ride them down."
Financial advisors would do best to sit down with these clients in the immediate future to make sure their investments are evenly allocated. Otherwise, they risk losing much of the equity they have built up over the years, the panelists said.
"It's going to be a difficult time to serve investors well, just because the investment markets are going to be so difficult," he said. "It's very hard to figure out how fixed income is going to do much of the heavy lifting."
The solution for financial advisors, Burns said, is to evaluate clients' portfolio construction and explore alternative investments.
If advisors don't examine, realign and better balance baby boomer portfolios, those clients could lose a chunk of their retirement assets. "If you panic and do the wrong thing in those years just transitioning into the target years of retirement, you could undo decades of hard work."
--Jim McConville