Meeting the demands of baby boomer clients led content at the
8th Annual Financial Advisor Symposium.

    It's looking more and more like baby boomers will strain more than Social Security and Medicare. The more than 75 million of them marching toward retirement are going to play havoc with advisors' businesses, too. Dealing with the deluge of retiring boomers, fast-shifting investment markets and the need for strategic business planning topped the agenda at the 8th Annual Financial Advisor Symposium in Chicago, September 25 to 27.
    More than 1,000 advisors came to the symposium to glean the expertise of more than 120 speakers and 40 in-depth workshops and panel discussions. The consensus? Advisors are uniquely positioned to serve the increasingly complex needs of boomers and their families. But that luxury won't come without numerous demands and challenges.
    "This is the fastest growing sector of the financial services industry and everyone knows it," said John Simmers, CEO of ING's broker-dealer network. While that means tremendous opportunities for advisors who want to grow their firms and accumulate assets, it also means heightened attention from state and federal regulators and even plaintiffs' attorneys. "You're in everyone's scope," Simmers told the symposium crowd.
    Echoing Simmers, the message that resonated throughout the three-day conference was a simple but direct one for advisors: You are in the catbird's seat. Now what? How do you attract the best clients, build an efficient business and run smart money?
    While grappling with growth can be an enviable affliction, it has major ramifications for both advisors and investors, especially since the industry has only begun to process the very first wave of retiring boomers. What will the retirement of more than 70 million more mean to the systems and processes advisors have built over the years?
    Put another way, "How many wealth transfer plans fail today?" asked David Polstra, a keynote speaker and principal of Brightworth Financial, an Atlanta-based wealth management firm that manages more than $500 million in client assets. "More than 70% of attempts to transfer wealth fail miserably," said Polstra, whose keynote speech was aptly titled, "Transferring Wealth with Wisdom: How to Give Your Possessions to Heirs Without Ruining Their Lives."
    As much as $136 trillion will be transferred to subsequent generations over the next 50 years. "In my firm, we're already dealing more and more with clients who have inherited significant wealth or will be passing substantial wealth to their heirs," Polstra said.
    Why do most wealth transfers fail? "Foolish expenditures, bad investments, excessive taxes, mismanagement, litigation expenses and family feuding," said Polstra, who believes that 60% of the time failure can be attributed to lack of communication among family members and 25% of the time to unprepared heirs.
    "Smart wealth transfers revolve around life goals, values and the transfer of wisdom before wealth, which is where advisors come in," Polstra said.
    The task for advisors is to work smarter to ensure more retirement, estate and other financial plans go smoothly. Why? Because the exponential increase in assets that hang in the balance for advisors and their clients will be mind-boggling, Michael Romano, regional vice president of Fidelity's Registered Investment Advisor Group, told a standing-room-only luncheon at the conference. By 2010, just four years from now, the annual rollover market will top the $407 billion mark. A whopping $19 trillion will change hands in the next decade and the distribution of retirement assets will hit $1 trillion annually by 2012.
    "Boomers are self-sufficient and they know what they want. Many will live as long in retirement as they did working. So things will change and change dramatically, as they look for solutions that go well beyond traditional income planning," Romano said.
    As a result, complex planning needs will put significant focus on the trust market, he added. Already, 72% of households with $1 million or more in investments use trusts. As the number of boomers with wealth and estate planning needs increases, so have the number of personal trusts that are being created. In fact, personal trusts have more than doubled (to four million) since 1997. Fidelity estimates that the $3.3 trillion in personal trusts today will grow to more than $7 trillion by 2010.
    The great news for advisors? Trusts are sticky assets that lead to multigenerational planning. "The average trust relationship lasts 25 years," Romano said. While trusts traditionally have been viewed as the bastion of banks, advisors should work hard for these assets and find providers they trust. "This is a way for you to insert yourself into the center of relationships as your investors' trusted advisor," Romano said. "They're not so much looking for products as they are a set of solutions and for you to have a perspective, a point-of-view."
    To cement the relationship, advisors should look for and demand integrated solutions that combine brokerage and trust services, because investors will demand this, too, Romano predicted. "If a client gets two different statements and must access two different platforms, you are not integrated," he said.
    In addition to an integrated platform and reporting, Fidelity is offering a number of price points to advisors and their customers, ranging from $200 to $300 annually for simple trusts up to four to six basis points, depending on a trust's size.
    With most boomers reporting that their greatest fear is outliving their assets, investing for retirement is a subject that is equally as hot, especially since so many of today's 78 million boomers do not have pension plans. "We're telling investors that we still believe that in the long run equities will outperform fixed income, so we think that there isn't any difference for retirement and nonretirement accounts for the investor willing to take efficient risk without giving away huge fees," said Jason Thomas, chief investment officer of San Francisco-based Kochis Fitz Wealth Management, which manages more than $1 billion for clients.
    "We focus quite a bit on total return investing and are reluctant to shift to income investments," added Thomas, who said Kochis Fitz's typical client invests $5 million or more with the firm.
    Peggy Ruhlin, a principal of Budros & Ruhlin Inc. in Columbus, Ohio, whose typical client has $2 million to $5 million with the firm, echoed Thomas' sentiments. "We don't see any reason to give up total return investing just because a client is retired," she said. "Our one concession is we'll set aside 12 to 24 months of expenses in cash for retirees."
    The good news is that clients aren't so much more risk adverse today and they are less greedy, said Ruhlin. "As a result, we've expanded our low-correlation portfolios to include commodities income funds and long-short stock funds," she added.
    In slight contrast, Rick Adkins, CEO of The Arkansas Financial Group Inc., said he lets clients dictate their asset allocation. "We've had clients say, 'My downside tolerance is 2%.' With our retirement portfolios there are actually two [portfolios], not one portfolio. Yuppies have the ego need for higher than 10% returns, so we divide their portfolios into the piece they eat and the piece we nurture and grow."
    Ruhlin and Thomas both say that as an additional investment and tax savings strategy they are preparing clients for the tax-free Roth conversion opportunity that arises in 2010. "We're getting clients ready, especially those who are maxing out retirement plans and traditional IRAs now," Ruhlin said, though she doesn't intend to recommend it to clients with very large seven-figure retirement accounts.
    And what of the search for the promised large-cap growth fund outperformance and already steady-performing noncorrelating investment opportunities? On the large-cap front, Christopher Orndorff, managing principal of Payden & Rygel and co-portfolio manager of the firm's large-cap and global equity strategies, says he likes technology and pharmaceuticals, especially firms with a global presence such as Johnson & Johnson, which is ramping up its orthopedics division and relying less on new drug introductions. "More and more, drugs can be reverse-engineered, and we think they've been devalued by Wal-Mart's promise to fill generic prescriptions for $4," Orndorff says.
    Ralph Parks, who relies on a unique proprietary technical stock selection system that he's developed over the past two decades, told the audience, "We love AstraZeneca; Merck is great and so is GlaxoSmithKline." Other consumer stocks that look good in Parks' charts are News Corp. and CVS. Parks launched the no-load Ralph Parks Cyclical Equity Fund earlier this year, hoping to duplicate his stellar private money management track record.
    On the low-correlation front, Lee Schultheis recently added the 16th hedge fund manager to his open-ended, no-load fund of hedge funds, the Alpha Hedged Strategies Fund, which includes long-short and leveraged strategies. "I think our managers are well positioned to seek out whatever opportunities arise in the stock market, whether that's large cap or something else. As hedge fund managers they have that flexibility," says Schultheis, whose fund has handily beaten aggregate bond indexes and has trumped or come close to the S&P since its inception in September 2002. The fact that the fund, which had $275 million in assets at the end of September, has low correlation to both equity and fixed-income indexes makes it an attractive alternative for advisors seeking diversity, Schultheis says.