Proving Value to Retired Clients: Creating a Financial Checklist

Proving Value to Retired Clients: Creating a Financial Checklist

Many of us in this society have a very negative image about aging in general. We don’t want to be “old”. It is fueled by advertising on TV, movies, print media and other outlets with a consistent message: aging is bad, being younger and turning back the clock is good. We are a work ethic driven culture. When we are older and no longer “productive” we are generally seen as less valuable.

Then there is the fear and denial about dying and death.  Our culture has been called the only one in the world that thinks of death as something optional.  Note how we talk about it to family–“in case anything ever happens to me… Besides it being a fantasy that maybe something” won’t happen to us, it keeps us from planning, from preparing our loved ones and from being responsible about our older years, possible declining health and the burden ignoring these things can put on our families.  Reaching retirement age is a time to do planning about more than money.

Financial advisors are in the planning business. You look ahead, analyze, budget and calculate. But your clients may not be on the same page in your view of the future.  They are busy being in denial that they may ever get ill and die.  You can help them.  In doing so, it may also make your job of talking about such issues as long term care, budgeting and spending easier.

Most people do not want to burden their loved ones. Most of them do not want to trouble adult children unnecessarily as they age. That is your best selling point for bringing up the personal matters.  These include how every senior and every retiree needs to plan for things in their own lives that go beyond how much money they’ve saved and how it will be spent having a great retirement.

Here at AgingInvestor.com we see the messes people leave behind when they nurture the Great American Fantasy that losing independence won’t happen to them and that they will live happily to age 100 and die peacefully in their sleep.  Family members can spend years cleaning up the disaster their older loved ones leave because of failure to plan and take care of business.  It is truly not fair to anyone.  It leads to anger, resentment, family conflicts and sometimes to loss of wealth through ignorance. We’ve heard it and seen it countless times.  We put a checklist together to help people avoid these disasters created by the fantasy.

What Can You Do About It?


You can give your clients this checklist next time you sit with them and review the portfolio. You can gently urge them to do what the list says is needed. We’ve broken down the essentials into 10 points, a “to do” list if you will. You can encourage them to take care of the items on the list, if they haven’t already.  In general, the to do list includes updating the estate plan, having critical documents in the right hands, providing necessary financial, computer and account information to trusted family and having a family meeting to educate one’s heirs about the older person’s affairs. This is how your client gets a family ready. This is how they avoid unduly burdening anyone. This is how they free their loved ones from distress and unnecessary work when they have to take action as an aging parent declines and passes away.

Some of your clients will brush off your suggestion. They love that Great American Fantasy and aren’t about to give it up. Others will thank you as they have thanked us and will go forward.  Their families will be forever grateful.  You’ll look like the caring, smart and responsible planner that you are.

 

Get your free 10 point checklist, Don’t Wait Until You’re Old, click HERE.

Carolyn Rosenblatt
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Carolyn Rosenblatt is an R.N. with 10 years of nursing and a lawyer with 27 years of legal practice. She has extensive experience working with both healthcare and legal i ... Click for full bio

Building a Better Index With Strategic Beta

Building a Better Index With Strategic Beta

Written by: Yazann Romahi, Chief Investment Officer of Quantitative Beta Strategies and Lead Portfolio Manager of JPMorgan Diversified Return International Equity ETF at J.P. Morgan Asset Management

With the global economy warming up, but political uncertainty remaining a constant, it’s more important than ever for investors to position their global portfolios to navigate long-term market volatility. That’s where the power of diversification comes in, says Yazann Romahi, Chief Investment Officer of Quantitative Beta Strategies at J.P. Morgan Asset Management and Lead Portfolio Manager of JPMorgan Diversified Return International Equity ETF (JPIN).

Not all diversified portfolios are alike  


In their search for diversification, many investors turn to passive index ETFs, which track a market cap-weighted index. But these funds aren’t always the most effective way to steer a steady course through volatile markets—and there are two key reasons why.

First, traditional market cap-weighted indices are actually less diversified than investors may think. For example, in the S&P 500, the top 10% of stocks account for half the volatility of the index. Within sectors, while you might assume that sector risk is distributed across the ten major sectors fairly evenly, it is a surprise to many that at any point in time, one sector can be as high as 50% of the risk.

Second, cap-weighted indices come with some inherent weaknesses, including exposure to unrewarded risk concentrations and overvalued securities. So, while these indices provide investors with exposure to the equity risk premium and long-term capital growth, as is the case with any other investment, investors can also experience painful downturns, which increase volatility and reduce long-term performance. For investors seeking equity exposure with broader diversification—and potentially lower volatility—strategic beta indices may be better positioned to deliver the goods.

How do we define strategic beta?


Strategic beta refers to a growing group of indices and the investment products that track them. Most of these indices ultimately aim to enhance returns or reduce risk relative to a traditional market cap-weighted benchmark.

Building on decades of proven research and insights, J.P. Morgan’s strategic beta ETFs track diversified factor indices designed to capture most of the market upside, while providing less volatility in down markets compared to a market cap-weighted index. Rather than constructing an index based on market capitalization—with the largest regions, sectors and companies representing the largest portion of the index—our strategic beta indices aim to allocate based on maximizing diversification along every dimension—sectors, regions and factors. The index therefore seeks to improve risk-adjusted returns by tackling the overexposure to risk concentrations and overvalued securities that come as part of the package with traditional passive index investing.

So, how do you build a better index?


As one of just a few ETF providers that combine alternatively-weighted and factor-oriented indices, our disciplined index methodology is designed to target better risk-adjusted returns through a two-step process.

First, we seek to maximize diversification across the risk dimension. This essentially means that we look to ensure risk is more evenly spread across regions and sectors, which balances the index’s inherent concentrations. As uncontrolled risk concentrations are unlikely to be rewarded over the longer term, we believe investors should strive for maximum diversification when constructing a core equity exposure.

Second, we seek to maximize diversification across the return dimension. Research shows that there are a number of sources of equity returns beyond growth itself. These include risk exposures such as value, size, momentum and quality (or low volatility). When creating a diversified factor index in partnership with FTSE Russell, we seek to build up the constituents with exposure to these factors. We therefore select securities through a bottom-up stock filter, scoring each company based on a combination of these return factors to determine whether it is included in the index. These factors provide access to a broader, more diversifying source of equity returns as they inherently deliver low correlation to one another, providing diversification in the return dimension.

So, whereas traditional passive indices allow market cap to dictate allocations, the diversified factor index seeks to ensure that we minimize concentration to any source of risk—whether it be region, sector or source of return.

How are you currently weighted versus the market cap-weighted index, and how have your under-   and over-weights enhanced risk-return profiles?


Crucially, our weightings don’t reflect specific views on sectors or regions and are instead, by design, the point of maximal diversification. It is important to remember that market cap-weighted indices typically carry a lot of concentration risk—for example, at various points in time, a single sector can explain half the risk of the index when left unmanaged. At the moment, three sectors explain two-thirds of the risk of the FTSE Developed ex-NA Index—these being financials, consumer goods and industrials. In contrast, the FTSE Developed ex-NA Diversified Factor Index—or strategic beta index, which JPMorgan Diversified Return International Equity ETF (JPIN) tracks—is explicitly designed to maintain balance and therefore these sector allocations range from 8% to 12%. In the short term, any concentrated portfolio can of course outperform a more diversified one, if the concentrated bet paid off.

Investing wholly in a single stock may outperform over short-term periods. At other times, it may significantly underperform an index. However, it is well understood that an investor is better off diversifying across lots of stocks for better risk-adjusted long-term gains. The same applies here. From a pure return perspective, if financials, for example, account for half of a cap-weighted index in terms of market cap and have a strong run over the short term, of course, this index would outperform over this period. Over the long run, however, it is fairly uncontroversial to suggest that the more broadly diversified index could achieve better risk-adjusted returns.

Seeking a smoother ride in international equity markets?


For investors targeting enhanced diversification through a core international equity portfolio, JPMorgan Diversified Return International Equity ETF (JPIN) targets lower volatility by tracking an index that more evenly distributes risk, enabling them to get invested—and stay invested.

Learn more about JPIN and J.P. Morgan’s suite of strategic beta ETFs here.

Call 1-844-4JPM-ETF or visit www.jpmorganetfs.com to obtain a prospectus. Carefully consider the investment objectives and risks as well as charges and expenses of the ETF before investing. The summary and full prospectuses contain this and other information about the ETF. Read them carefully before investing.

 

J.P. Morgan Asset Management
Empowering Better Decisions
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See how ETFs differ from other investment vehicles, learn how to evaluate them, and discover how ETFs can be used effectively to achieve a diversity of investment strategies. ... Click for full bio