Although increasingly popular, ETFs
are not well understood by most investors. In the new white paper, “Examining
Exchange-Traded Funds,” Arnerich Massena reviews the history and construction
of ETFs, investigating the claims of tax efficiency, liquidity, transparency
and cost.
At the start of calendar year 2000,
there were just 30 ETFs registered with the U.S. Securities and Exchange
Commission, but by February 2012, there were more than 1,400 registered, with
another 900 applications pending. ETFs currently account for more than $1.2
trillion in assets in the U.S. and ETF assets are growing at a pace greatly
exceeding that of traditional mutual funds.
“In our view, exchange-traded funds
may have their place in a particular portfolio, but that place is dependent on
overall portfolio construction,” explains Tony Arnerich, CEO and CIO of
Arnerich Massena and a co-author of the white paper. “Because ETFs have been aggressively
marketed, it’s important for investors to be aware of not only the benefits,
but the accompanying risks and complications, when considering ETF funds for
their portfolios.”
As retirement itself has
grown more complex, so has the job of guiding people through it successfully. Conversations
around sensitive issues are becoming increasingly common and more necessary, yet
advisers may be unsure how to start the conversation.
“Any financial adviser
dealing with retirement planning in discussions with clients touches on these
topics on a daily basis,” said Katherine Roy, executive director and head of
individual retirement at J.P. Morgan Asset Management, and one of the guide’s
lead authors.
“Any question that walks in
the door from a client, advisers can simply flip through the book to find the
right page,” Roy told PlanAdviser.
“Here, we’ve boiled it down to simple pictures to get to the meat of the
matter.”
The guide spans retirement
topics in sections for:
Setting
the stage (life expectancy probabilities, older Americans in the workplace,
managing expectations of ability to work, Social Security, spending and
inflation, and cost of health care in retirement);
Saving
(retirement savings checkpoints, benefits of saving early, evaluating a Roth
IRA);
Spending
(typical wealth and sources of income at retirement, the impact of returns on
distribution, changes in spending); and
Investing (structuring a portfolio to match
investor goals, diversification, major asset classes versus inflation, the
impact of being out of the market).
(Cont’d)
Another feature of the guide
is that it speaks to the profile of most financial advisers who, Roy said, are
good at living in a quantitative world where things are measurable. “Retirement
pulls them out of their comfort zone and into less comfortable topics that are
qualitative. The guide helps them discuss issues in a quantitative way.”
The rising costs of health
care and people’s concern about how they will pay for it continue to arise.
Studies are starting to show that it is the financial adviser who is going to
be the person to help people navigate how to anticipate and plan for those
costs. Yet, Roy said, “A few years ago they had that deer-in-the-headlights
look when the topic came up.”
She predicts there will be
more opportunity and more need for advisers to cover these issues with clients.
Advisers can use the guide to
hone in on a question about Social Security or income. As Roy points out,
income in retirement has a lot of facets. The guide can help pinpoint whether
it’s sources of income or changes in spending habits or the effects of
withdrawal rates that are top of mind.
“What can begin as one
conversation can quickly morph into another,” Roy said, “which is why it’s so
great to have it all in one place.”
Another tool is in the
guide’s appendix, which contains graphs on Medicare, Roth and traditional IRAs,
and annuity basics. “Clients continue to think Medicare is going to be more comprehensive
than it actually is,” Roy noted.
On Friday, the guide will
launch in digital format online. “Rather than just looking through a PDF, it’s
an interactive way to browse the guide, listening to audio for back stories and
more education in order to understand the American landscape,” said Cathy
Peterson, vice president of Retirement Insight, J. P. Morgan Asset Management.
Financial advisers can find
what they need by searching for specific topics. “Advisers can experience and
read the key talking points to make sure they are well versed before they talk
with clients,” Peterson added.
The Retirement Guide is free of charge and available here.