Products June 25, 2008

iSectors Releases Asset Allocation Models for RIAs

The iSectors ETF-based asset allocation models employ post-modern portfolio theory and behavioral finance.
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Independent wealth management firm Sumnicht & Associates, LLC, announced the availability of iSectors Post-Modern Portfolio Theory (Post-MPT) asset allocation models. The model is available for investors through registered investment advisers (RIAs), according to a release.

iSectors offers two Post-MPT Allocation models that provide low correlation to stock and bond markets. The allocations are offered in separately managed account format with various custody options. The company said this model improves upon the traditional post-MPT approach by allocating among asset classes that are much less correlated than traditional capitalization-weighted methodologies.

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“During the current market environment, investment advisers are looking for new, innovative solutions to help their clients’ core portfolios by improving returns without taking on excessive risk,’ said Vern Sumnicht, president and CEO of Sumnicht & Associates. “We’ve seen great success using iSectors in our clients’ accounts and are excited to now offer these allocation strategies to other advisers and their clients.’

The allocation models can also be integrated with a broader outsourcing system. The iSectors allocation models are built into a turnkey asset management platform that also provides performance, allocation, holdings, billing, tax, and other reports.

More information is available at www.isectors.com.


Data & Research June 25, 2008

Pre-Retirees Fail Retirement Income Test

Fifty-nine percent of pre-retirees are seeking financial advice on 401(k)s, retirement savings, and long-term care insurance, according to a MetLife study.
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It might not be a surprise that pre-retirees are seeking advice, as individuals within five years of retirement failed miserably MetLife’s second Retirement Income IQ Test, a national poll to gauge pre-retirees’ knowledge of retirement income issues. The pre-retirees scored 43 on a scale of 100.

According to a press release on the test results, almost seven in 10 (69%) pre-retirees overestimate how much they can draw down from their savings during retirement—with 43% saying they believe they can withdraw 10% or more each year while still preserving their principal. MetLife said most retirement experts suggest an annual withdrawal rate of no more than 4%.

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Additionally, 60% of the 1,216 males and females who completed the test underestimate life expectancy and almost half (49%) underestimate the amount of pre-retirement income they will need once they retire. MetLife noted the test results clearly point to a need for more education, advice, and guidance for individuals approaching retirement.

Nearly seven in 10 (67%) test respondents do not know that Social Security, a defined benefit pension plan, and an income annuity all pool risk to pay out a lifetime stream of income, and an equal number (67%) do not know that an income annuity provides income that is guaranteed and cannot be outlived. Fifty-nine percent reported that they are seeking financial advice on 401(k)s, retirement savings, and long-term care insurance.

On a positive note, more than half (56%) of respondents correctly understand that longevity risk is the greatest risk in retirement, up significantly from 23% in the first Retirement Income IQ test in 2003. Additionally, almost three in four (73%) know when a 55-year-old is able to collect full Social Security benefits, and two in three (62%) have a good understanding of how long-term care expenses are covered.

Although more women tend to be concerned about financial security, the men completing the test answered more questions correctly and by a higher margin. Almost one-third (31%) of men correctly selected 3% as the average annual rate of inflation over the past 20 years versus only 16% of women. Men are slightly more likely to understand that experts recommend using a benchmark of 80% to 90% as the amount of pre-retirement income needed in retirement (50% of men verse 41% of women). However, women were more likely to know that the average annual cost of a private room in a nursing home is $78,000 (35% of women verse 27% of men).

Almost two-thirds (65%) of men are somewhat or very confident they will have enough money to live comfortably if they live until 85 years of age, compared with 50% of women.

The full Retirement Income IQ test, the correct answers, and answers given by the study group are available at www.maturemarketinstitute.com.

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