Financial advisor symposium attendees hear how to restructure practices for retiring boomers.

    About 1,200 advisors and other financial professionals gathered in Chicago for the 10th annual Financial Advisor Symposium, which took place from October 8-10. Attendees at the opening general session heard Robert Froehlich, vice chairman of DWS Scudder, talk about mega-investment trends and Mark Goldberg of Private Wealth Management and Mark Hurley of Fiduciary Network discuss the rapidly changing market for financial advisory practices.
The aging of the U.S. population will determine how people live, what they buy and how they save, said Froehlich, who told the advisors that he expects boomer behavior and investment patterns to drive the Dow Jones industrial to 25,000 fairly rapidly. "I think it will hit 17,000 in the next year," the frequent guest co-host of CNBC's Squawk Box said.

Hurley and Goldberg explained that the remarkably predictable cash flow characteristics of substantial advisory firms have caught the attention of private equity investors. Goldberg predicted independent RIAs will be managing more retail assets by the end of the next decade than all five major wirehouses combined.

The fixed-income panel on October 9 featured four bond market stars-Loomis Sayles wizard Dan Fuss, YieldQuest Chief Investment Officer Jay Chitnis, GE Asset Management fixed-income chief Bill Healey and Julius Baer & Co.'s Greg Hopper. None thought a recession in 2008 was probable, and all of them gave Fed Chairman Ben Bernanke very high marks for his handling of the credit crunch crisis last summer.

Chitnis, who also manages an equity fund, noted the striking disparity between prices in the stock and bond markets. Setting new records on a daily basis, the stock market "is telling us" we are in a Goldilocks economy, while yields in the bond market are saying a recession or prolonged slowdown is in the cards. "They can't both be right," Chitnis declared, adding that he thought the equity market probably had a better grip on reality than the bond market, which is still recovering from last summer's bout of paralysis.

Asked about where the value is in a bond market where Treasury yields have fallen dramatically, Fuss pointed to the municipal arena and the other panelists agreed. Many observers are expecting taxes to climb in the next decade, a development that would accentuate munis' advantage. And yet, as Healey explained, fear of higher taxes could trigger a surge in capital gains tax revenues in 2008, and that could enable the next president to begin his or her first term with a balanced budget.

But the more intractable deficit may be the current account trade deficit. As long as the dollar remains the world's primary reserve currency, U.S. policy-makers have only partial control over it. And Hopper explained that the only solution to this is a lower dollar. In fact, the skidding greenback has already stimulated exports to grow at a faster pace than imports, a welcome development.

But demographics remained the dominant theme at the conference. That message was brought home by veteran advisor Deena Katz, a boomer herself who led a standing-room only breakout session on the topic of how and why advisors must restructure their practices to accommodate the deluge of retiring boomers in America.

Katz generated lots of laughter with several slides, including one in which a handsome, gray-haired couple sits astride a gleaming Harley somewhere on a mountainous byway. Is the ad selling motorcycles? Travel? Financial planning so you can afford the $150,000 Harley? No. It's selling AARP-sponsored motorcycle insurance.

A gap-toothed and golden Lauren Hutton smiled from the group's first magazine cover in 2003, surrounded by story headlines about how to find dates if you're single and new sex drugs that work (only two of which are for men).

"Sixty is the new 40," Katz said. "Midlife will be extended for years, even decades." And in that time, investors and their advisors will be confronted with a host of new challenges, including career changes, complex family situations, aging health issues and, of course, stiff financial requirements for income.

It's not only state-of-the-art financial products and services-some of them non-traditional-but also a major shift in mindset that investment advisors must embrace if they want to effectively serve the 78 million Americans fast approaching retirement, said Katz, an advisor, author and college professor, to advisors during her workshop.

"Boomers are rejecting the notion of retiring as dropping out," Katz said. "Who would have known the dropout kids in the 1960s would become workaholics in the 1980s and 1990s?" she asked. More than 80% of Americans in their 60s and 70s plan to continue working, and 17% want to start their own business, according to the AARP.

For some, retirement will represent a time to shift gears and retool themselves and their careers to match their hearts' desires. For others, it will be a necessary chore-the only way to shore up necessary cash-flow needs.

While products will be important, the real emphasis will have to be on advice, even career, retirement and living advice, said Katz, who suggested that the time is now for advisors to begin enhancing their collaborative partnerships with attorneys, coaches, career centers and even geriatric care specialists. "I had a client come in last year, a CEO of a pharmaceutical company who wanted to become a high school science teacher, and he wanted me to work with his wife to assure her that this wouldn't impact her lifestyle," Katz told advisors. "Today he's a science teacher in Texas."

Katz, chairman of Evensky & Katz, a $1 billion-plus advisory firm in Coral Gables, Fla., decided several years back that after a lifetime of practicing and writing about financial planning, she wanted to teach it. Today, she's an associate professor in the financial planning department at Texas Tech University.

At the same time, with some boomers expected to spend 35 years or more in retirement, income-planning finesse will become paramount, Katz said. And not all boomers are alike, she warned. There are significant differences and needs among early-stage boomers who are likely to have defined benefit pensions and paid-off homes, and later-stage boomers, who "may be wearing or driving their retirement" and may not have enough liquid assets to fund necessary cash flows.

"We need to become experts in decumulation and cash-flow planning, net inflation," Katz said. That will force advisors to look seriously at the new breed of annuities products, which will allow them to create personal pension guarantees that combine income and growth. "Clients will need cash flows from a total return portfolio-not just dividend and interest income."

To be able to assist boomers who may really start to feel the financial pinch in later years, Katz recommended that advisors start familiarizing themselves now with nontraditional cash flow products such as reverse mortgages and life and viatical settlements. "These may be the only option for some folks, and if we leave it to someone else, that's where our clients will turn," Katz said. She added that statistics are showing that advisors who allocate 25% of a retired client's portfolio to immediate annuities, 25% to variable annuities and 50% to an appropriate equities-based portfolio, can significantly lower their clients' odds of running out of money.

Frank O'Connor, senior manager of variable annuities applications at Morningstar, told advisors during the "What's New in Annuities?" panel that there is a plethora of new "guaranteed income" riders, but that advisors must understand the costs and trade-offs. One thing to watch out for with newer VA contracts is automatic rebalancing, which will sell off equity subaccounts after the market falls, keep the money in money markets until it rebounds and then buy back equities after they've bounced back, in effect locking in losses. "I don't know what the cost of this kind of rebalancing might be over years, but I think it could be fairly significant," O'Connor said.

The two other panelists-Patrick Ferrer of Old Mutual Financial Network Securities Inc. and Mitch Politzer of Ameritas Advisors-are both bringing new-generation no-load variable annuities to market in the next six months. All of the panelists recommended that advisors do side-by-side comparisons that clearly show what competing contracts offer and cost on a relative basis. Both Morningstar and Ameritas Advisors offer comparison services, though Morningstar's is more extensive.

While purists would never use the words "annuity" and "assets" in the same breath before, Katz said, it's becoming clear that even people who have accumulated a million in assets or more may have a difficult time retiring without the type of guarantees annuities provide. Boomers are already starting to impact the VA market. Sales of VAs jumped by 10% through the first half of the year, representing total assets of more than $1.5 trillion.
To help more modest investors, Steven Rogé, co-portfolio manager of the Rogé Partners Fund and the newly launched Rogé Select Opportunities Fund, said he launched his company's mutual funds as a way to provide folks who aren't a fit for the firm's mainstay wealth management services with access to Rogé's investment management prowess. To date, the firm's flagship Partners Fund has returned 18.65% in average annual returns since its 2004 inception. Rogé, a panelist on the "Working with Middle Class Clients" panel, said the offering is a core investment to help investors bridge their retirement shortfall.

Mel Johnson, president of Johnson Retirement Planning in Raleigh, N.C., said the best product he found out about at the conference will also help him protect clients against risk. Johnson was referring to the new Schwab Fundamental Index Funds the firm introduced with the seminal research of Robert Arnott, who has gone beyond cap-weighting stocks to devise a more fundamental approach to weight and market value selection. "I learned I'll be able to get as much as 200 basis points in upside performance during bull markets with the funds and outperformance in bear markets, so my clients will be able to avoid unnecessary losses," Johnson said.

More than ever, speakers reminded advisors they need to stay in close contact with their clients. Phoenix Investment Partners Executive Vice President Steve Gresham, who is the author of Advisor For Life, said that the top advisors are acutely attentive to their clients' needs and whims and typically meet with their top clients about three or four times annually. Those who aren't doing this are at risk of losing clients to another advisor.
A session on creating a retirement paycheck featuring Financial Advisor contributors Dave Lawrence and David Drucker and retirement income guru Michael Zmistowski turned into something of a town hall meeting. Zmistowski called "life planning really no more than financial planning well done."
However, all three experts declared that while the spending side of a client's life is always important, it's become critical once someone is living on a fixed income. The trio also debunked that popular financial planning myth that retirees, particularly new ones, will reduce their spending to 70% or 80% of pre-retirement levels. "I suspect most baby boomers will want to spend as much in retirement as they did when they were working," Zmistowski said.

While many retirees and pre-retirees downsize, that move sometimes can come with collateral costs. "I moved from a 4,700 square foot house to a 2,100 square foot house," Lawrence related. "Shortly thereafter, my wife divorced me." After the session, he acknowledged there were other factors involved, including caring for an aging parent.

In the final general session, Christina Benz interviewed three all-star fund managers: Ariel Funds' John Rogers, Wintergreen's David Winters and Sentinel Asset Management's Elizabeth Bramwell. For her part, Bramwell said she is looking for ways to play the strong global economy among large-capitalization growth companies with strong exports abroad. She named Emerson Electric, General Electric and Colgate-Palmolive as three of her favorites.

"The subprime market problems will take a while to work itself out," Bramwell said. "We think consumers will be under stress for a while but equities will be more attractive than bonds or money market funds."
As a value and occasionally deep-value investor, Rogers acknowledged that it requires discipline. Quoting Warren Buffett, he remarked, "Value investing is like an inoculation; either it takes or it doesn't take. We're finding more bargains in the smaller part of the market."

Value investing sometimes means stepping into what appears to many investors to be the classic "value trap." Rogers has bought into the troubled newspaper sector, and he voiced hope that their online advertising business would pick up, partly as a result of joint ventures with companies like Yahoo! "We are contrarians and we like to buy when everyone else is selling," he said.

A disciple of Mutual Series' maven Michael Price, Winters repeatedly expressed his hopes for bad times that would result in an increase in special situations and distressed debt opportunities. Despite his favoring deep value situations, Winters owns shares of Google. Having been a longtime media investor, Winters said he was impressed by the way the company had devastated traditional media. "They are crushing the competition and we like category killers," he noted.