Why Every New Retiree Should Have Two Financial Advisors

March 22, 2013

In this 2011 analysis in Smart Money magazine, which remains timely and relevant today, author Glenn Ruffenach makes the point that the advisor who got you to retirement, is very often not the specialist you’ll need to get you through retirement.

When we were in our thirties, forties, and fifties, an advisor’s mission was to get us to our target retirement date by growing our retirement savings subject to risk, primarily in the stock market.  When the market grew, we benefited fully from that advance. When the market retreated, we were reminded that we were long-term investors with a 20+ year time horizon, and that we should remain invested “for the long term, because most attempts at timing the market are unsuccessful.”  It was understood that our time in was more important than our timing, and that while our accounts were subject to “on-paper” losses, “selling would merely lock-in those losses” and being sidelined would prevent us from benefiting from any recovery once it began.

During these decades, we also remained active contributors to our accounts at work, and those 401(k)s and SEP-IRAs benefited—like the teenagers under our roofs—from continual feeding and ongoing investment.  Any non-qualified (non-IRA) investment accounts we had also benefited by the reinvestment (rather than the taking) of dividends, as the flattering market history charts on the walls of our stock broker’s office just naturally assumed.

If you’ve arrived at your sixties with financial scar tissue still visible all over your disfigured retirement accounts, you’re not alone. The last thirteen years have devastated many investors, even as they poured precious assets into the sieve that was Wall Street from 2000-2013.  Many of you long ago lost the stomach for the roller coaster, and have rejected the clichés of “long term investor,” “on-paper losses,” and the charts and studies that brokerage firms too often misapply to retirees, seniors, and even the elderly as age-inappropriate malpractice that has harmed millions like you.  You understand that now is the time to emphasize preserving—more than or at least as much as growing—your accounts, for you and your spouse, as well as any legacy you hope to leave your children.  As such, you now believe that the majority of your holdings should be in safe, guaranteed instruments, with a minority share remaining in a conservatively managed, and well-diversified equities account.

But herein lies the rub: The advisor who handles this now-smaller piece often doesn’t have the training, perspective, or skill set and expertise to also handle the larger, safety-focused piece.  As a revealing study in Financial Planning magazine recently showed, most risk-based advisors are woefully out of touch with the primary goals of their retired clients: When clients were asked what their top concern was, 88.6 percent said “losing their wealth.”  When their advisors were asked the same question, only 15.4 percent believed “losing their wealth” was the most important issue to those clients.

 

The investment charts used by these advisors still assume reinvested dividends—even though you and most of your friends have begun enjoying that dividend income in retirement—rendering those charts inaccurate of your market experience and goals. (Incidentally, those charts also don’t include fees, expenses, taxes or inflation.)  Their time-worn clichés still roll off their lips like compliance disclaimers (“past history is no guarantee of future performance”), even as you and your spouse yearn for non-legalese, plain-spoken, common-sense candor in plain English, and the approach and product recommendations that should accompany it.  He/she “can’t guarantee” at precisely the stage in life where you want guarantees—guarantees against market losses, accompanied by tax advantages, leverage for heirs, and reasonable rates of return.  You don’t care if you never hit another home run again—and you’d be happy hitting singles, doubles and the occasional triple—but you simply can’t afford to lose the game swinging for the fences any more.

In the same way that many of us have a dentist and an orthodontist, a tax preparer and an estate planning attorney, a primary care physician and a specialist (oncologist, cardiologist, etc.) based on past treatment history—so too should we have two financial advisors: a growth money manager whose specialties are risk-based, and a safe-money advisor who specializes in guarantees, income-planning, wealth transfer, long-term care planning, and reasonable rates of return on your money.

This brings me to my final point, and it’s an important one: If either of these two advisors are unwilling to work together on your behalf (like doctors sharing treatment regimens out of professional courtesy), you should seriously consider finding a replacement for that person.  Specialties should be respected, not disparaged, especially when one is dealing with monies that it’s taken one’s client 40 years to save.  After all, it’s not their money, it’s yours.

Breathe easy and spread the word.

 

Thomas K. Brueckner

President & Chief Executive Officer

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