This is the attitude of most planners...mine included. But it has been suggested to me that ethically perhaps these black and white delineations are not the best idea...eh?

Date:   8/2/2005 8:54:44 AM ( 19 y ago)

Financial planners keeping up with new trends


By BOB CHUVALA


Baby boomers edging closer to retirement are causing ripples in the financial services industry as they shift from years of amassing wealth to planning how to distribute those assets during their golden years.

"People like my dad, who are going to retire within a few years, have to shift from growing their wealth to protecting and preserving it for income," said Keith Sommers, owner of Summit Financial Management in Shelton.

"One investment vehicle that can grow and protect at the same time is a variable annuity with income and protection benefits," he said of a growing trend in personal financial planning.

Those annuities provide a fixed percentage of the investment each year and build the asset so that the fixed percentage each year is paid on higher amounts in the annuity.

"Years ago, many people didn't like variable annuities because they thought the expense were too high and investors had to be in them too many years," he said. But since 9/11 and the market correction, "companies have revisited the product and reduced the term of investment to a four-year hold rather than a nine- or 10-year hold."

The modified annuities are more attractive to the average investor, he said, and "have definitely been a product trend change."

Those modified annuities are tucked into a more macro trend in the industry, "a more holistic approach to financial planning and wealth management," said Russ Gilfix, director of portfolio design and client services at Diddel and Diddel in Stamford.

"Financial planning has traditionally been developing a specific strategy to achieve a very explicit goal," Gilfix said. "For example, you're young and out of college for several years, married and trying to buy a house. The next stage in life, you have kids and want to put money aside for college. The next big milestone is planning for retirement."

"Once you're focused on a specific goal, it's easy to drill down more and more on that issue and not see its effect somewhere else." One example is the dot-com bubble. "A lot of investment strategies were trying to take full advantage of aggressive growth, and for a little while did very well." But when the bubble burst, "clients lost a lot of money, and affected things like retirement accounts, pension funds and college accounts."

The holistic approach, however, puts an investor's whole life in perspective and tries to develop a financial plan keeping all the various financial elements balanced, he said.

Do-it-yourselfers

One trend in personal financial planning that may be withering is the handyman brand of planning. Software development over the past few years has changed the way financial planners work. "Obviously, the quality and depth of capacity of these tools have grown considerably and are becoming more and more prevalent," Gilfix said.

And, similar software tools, cable television all-business-news programs and the Internet have allowed "more and more people out there trying to do this on their own." Some stay-at-home financial planners have been successful, some have not, he said. "But most people can't put full time to it. They fit it around their job and family and everything else. Sometimes a little knowledge can be extremely valuable or dangerous."

One result of that learning experience is that "people are coming back to the table again, saying they really do need advice," said Sommers. "Over the past few years, the shift has been in people realizing they need help with their investments and are looking for the right advisers to work with. They're not taking the advice of whoever is on TV talking about the hottest stock."


Fee vs. commission

Investors coming back into the financial planning world are finding some changes in the way they are billed. "There has been a trend for a number of years toward what's called fee-based or wrapped-based service," said Gilfix. "In the traditional investment scenario, you buy or sell stocks and bonds and pay a transaction fee and stockbrokers made their money by the fees. Obviously, there's a potential for conflict of interest."

But fee-based compensation lessens the perception of conflict and allows the planner to be more objective in their dealings with clients, said Robert J. Reby of Robert J. Reby and Company Inc. in Danbury. Fee-based compensation "has taken shape more aggressively during the last three or four years," he said.

The trend is consumer driven, Reby said. "The consumer is saying, 'When you give me a recommendation, I don't want to think you're giving it because you have to feed your family, but because it's right for me.' "

Commission-based advice still hangs on for the less affluent investor. "One of the challenges in our business is that at certain levels of net worth, the investor really can't afford a fee. For people who want good advice but have $100,000 or so to invest, commission-based is best." A fee-based relationship wouldn't support the level of service a client deserves."

"When I started 20 years ago, I was at 100 percent commission. About seven years ago that dropped to 85 percent commission, then made a transition to fee-based relationships about five years ago," he said.

One reason is that Reby works mostly with higher net-worth individuals. Middle-class clients with less than $200,000 to invest look for planners who cater to the less affluent. "The fee-base relationship isn't dead, but it is for the semi-affluent and affluent communities."


 

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