Financial Planning

Seizing New Opportunities for Growth
by Geoffrey and Gregory Kaltenbach

The financial services landscape has changed significantly. It used to be that insurance firms only did insurance, investment management firms only managed assets, and accounting firms only addressed tax and financial strategies. However, deregulation, enhanced marketing, and the consumer’s need for a one-stop shop have created the wealth management firms of today. These firms take a more comprehensive, personalized approach to each client.

It is difficult to master all of the issues our clients face in today’s modern financial landscape. Financial strategies must encompass all critical areas of wealth management including retirement savings strategies, retirement income planning, estate conservation, business strategies, and comprehensive asset management.
This demanding financial arena offers tremendous opportunities for financial professionals who can deliver the services, solutions, and resources vital to their clients’ financial well being. Let’s look at three key areas of opportunity:

Retirement

There has never been a greater need for comprehensive retirement strategies. Amer-ica’s over 65 population is set to double to more than 77 million by 2040. The average Baby Boomer will retire at 62. Baby Boomers can expect to be in retirement for 23.5 years or 29 years for a couple, according to the Census Bureau. Furthermore, the majority of Americans do not know when they will qualify for full retirement benefits from Social Security. Our industry has done a poor job of preparing clients for this stage in their lives.

One out of three retirees and one out of five pre-retirees have no formal written retirement plan. Many of the plans that people do have are based on incorrect assumptions. This problem is even more alarming as defined benefit pension plans and their guarantees quickly become a thing of the past, according to a 2005 LIMRA study.

Future retirees will need to rely more on savings and 401(k) plans to retain their standards of living since Social Security may no longer provide the major component of retirement income. When you blend retirement insecurity with longer life spans, rising healthcare costs, decreasing medical coverage, and care giving for aging parents, you have a recipe that begs for help from financial professionals.

401(k) and Rollovers

Many 401(k) plans don’t offer enough choices or the right types of funds to create a diversified portfolio suited to each worker’s risk tolerance. In addition, nearly 50% of retirement plan participants do not roll over their 401(k) accounts when they change jobs. Their money may languish in a former employer’s plan when it could be working harder. The opportunity here lies with the employer and the participants. Under ERISA, plan sponsors are accountable for providing an array of appropriate investment options so participants can diversify properly. For participants who leave their jobs, skilled financial representatives can explain the benefits and the simplicity of rolling over their retirement accounts to a traditional IRA. An IRA can provide the following: a consolidated statement, easy-to-change beneficiaries and addresses, a single contact for account management, simplified portfolio management, less paperwork, and simpler asset allocation and rebalancing.

Estate Conservation

Inter-generational planning provides tremendous opportunities for financial professionals. You can help successful small business owners who have significant wealth tied up in non-liquid equity to pass the business to the next generation.
Conserving the estate is a key element in the financial plan when addressing Baby Boomers’ needs in retirement savings and income. Few of your clients may realize that federal tax rates begin at 45% and rise to 47% for estates valued at $2 million or more for 2007. They many not know that estate taxes are due within nine months of death. Financial representatives and tax consultants are needed to help clients conserve as much of their estate from taxes as possible, make appropriate gifts, establish trusts, and purchase life insurance to cover estate tax and settlement costs.
It gets increasingly complex when you combine regulatory changes, the investment market, and the evolving needs of Baby Boomers. These complexities compel financial professionals to develop our own knowledge and partner with the right experts and firms. With the emphasis on objective advice with a broad product portfolio, we need a platform of investments, and advisory and protection products combined with comprehensive training and development that can grow with us.

An RIA Platform for Success

The investment community has done a fine job of helping investors accumulate assets. The key to success for financial services firms is to be equally proficient in helping clients with income planning needs. Retirees are living longer. They may need to plan for 30 or even 40 years in retirement while coping with escalating healthcare costs and inflation. That’s why income planning is critical to the well being of our clients. We often associate income planning with retirement planning, but sometimes, clients have accumulated a great deal of wealth that they want to draw on before they retire.

Firms should consider a registered investment advisor platform to develop accumulation and income strategies for clients. This platform allows financial advisors to expand investment services beyond mutual funds to include fee-based financial planning, mutual fund wrap programs, separately managed account programs, and access to a variety of sub-advisors. These capabilities not only enhance the image of the advisor and the firm, but they also enable them to provide objective advice and a range of products to fit clients’ needs.
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Geoffrey and Gregory Kaltenbach are co-managing directors of Irvine-based Signature Resources, the largest independent office of the John Hancock Financial Network. Signature Resources is associated with John Hancock Financial Network, the service mark of John Hancock Life Insurance Company and its affiliated companies. For more information, e-mail gkalt@jhnetwork.com or geoff@jhnetwork.com.