Investing for Longevity
We think we’re really good at helping our clients plan for, invest and continually reassess where they stand as they move through their (potentially) longer lives. Here are several important areas of focus:
Measuring progress in relation to goals. This is accomplished through an intuitive process that accounts for asset positions, other cash flows and required/desired spending. Our measurement tools help indicate clients’ ability to distribute funds to family or charity earlier than they initially thought possible. For this, we have adopted a tool widely used in the defined benefit world: the funded ratio. Unlike a more simplistic focus on the asset side of the ledger, the funded ratio looks also at the client’s liability and spending side of the equation. Assets—or, as we prefer, “resources”—include incoming future cash flows, while liabilities (or “claims”) include both actual liabilities and obligations that may be willingly assumed, such as education costs and the cost of care for relatives.
Carefully tracking liabilities to clearly determine each client’s funded ratio. We think of it as adapting to life circumstances. For those who are relatively “close to the line” in funded ratio terms, we use “decumulation” (distribution) management. This adjusts asset allocation to optimize cash flows and deal with longevity risk while retaining the maximum flexibility for the client. In other words, depending on how the markets perform, and how the clients’ family circumstances evolve, they can still have options.
Having a backup plan. This is for unanticipated spending needs or market declines that drive a client’s funded ratio to “1” or below. This is what we call the “annuity floor”: Clients can hedge their longevity risk by purchasing that product. Although this kind of move is not inflation protected, it’s better than having the bottom fall out of the future.
Investing in ourselves. Finally, we’re focusing on furthering our firm’s sustainability so that we can continue to provide multi-generational client stability. Our firm is growing from within, among other ways by providing education, mentoring, ownership and leadership opportunities to motivated associates.
Thanks to the Age of Longevity, our present leadership can still contribute to the firm’s wisdom capital decades from now. But we’re enormously proud of and focused on our up-and-coming generation of management—and we’re happily engaged in the process of passing the keys of the executive and ownership suites to them.