So now retail brokerage is trying to capitalize on a concept that many advisors like myself have been talking about for years. Having been a retail broker many years ago, we were taught in some instances how to accumulate assets and grow them. The firm I worked for did not pressure me to sell product but allowed me to use stocks, bonds and a couple of specialty mutual funds where the managers had a competitive advantage. Up until very recent times, retail brokerage has ignored the fact that what most people are looking for is someone that can help them take their money that’s typically in stocks or stock mutual funds that they have gathered through the accumulation period of their lives and transition into the distribution of those assets into steady, sustainable, predictable income. Asset managers such as myself have been working with this concept for years knowing that retail just didn’t get it! Someone has alerted the retail brokerage industry that distribution of assets as income is a major concern for most people nearing retirement.
About three years ago I wrote an article for CNNMoney on this topic. My method uses multiple sources of income using a custom bond ladder that immunizes my client against interest rate risk. It also uses, in some cases, fixed indexed annuities that are designed for income. Please note that I am not advocate or fan of variable annuities, primarily because of high fees and market risk associated with them. Social security planning also can play a big part in the retirement income picture. Some people have adequate income through pensions and Social Security, or maybe income from real estate investment. In those cases, we look to grow their assets and turn on income at key times. Those who simply don’t need the income, don’t have to take it. We can plan for passing those assets to heirs or beneficiaries with the least amount of tax impact.
While big retail brokers have started to figure out what the people want, in my opinion, just like the way these behemoth companies have invested money, they will attempt to distribute it through means that is designed for the masses. What I mean by that is, that nobody can really have a plan designed for them, but the plan will probably be a plan designed for the majority of people without regard to a family’s individual needs.
Typically, a plan for the masses should be cost efficient compared to a custom design plan. I can tell you that is not accurate. At my company, M HP asset management, we custom design the portfolio and income plans for the client using individual bonds, not funds that have expense and often times commission attached. We may use exchange traded funds that are extremely low cost but do a great job to represent an asset class. If your plan includes a fixed indexed annuity you will be aware of any rider fees that the insurance company charges, in most cases to guarantee income. Any company or fund that we at MHP recommend will be very low-cost. You must look at all layers of fees that are being presented to you.
You must also understand the difference between a retail broker who is not working in a fiduciary capacity versus an investment advisory firm that works for the client, not a broker-dealer.
