The Flipside of Multigenerational Planning: 6 Things Your Clients Need to Do to Protect Their Aging Parents

The Flipside of Multigenerational Planning: 6 Things Your Clients Need to Do to Protect Their Aging Parents

Written by: Matthew Paine

For many advisors, a client meeting about multigenerational issues has been focused on transferring wealth to the next generation or helping them begin saving for their futures. Now, many of your clients face the opposite generational issue: how to help their parents get their finances in order to ensure independence and security in their retirement years.

If you haven’t gone down this road yourself (yet), you should talk to the many of us who have. You think your parents have made all the right moves from a planning perspective, saving diligently and investing wisely to be on track for a successful retirement. But no amount of traditional financial planning prepares you for the gut-wrenching issues of aging parents with debilitating illnesses like dementia or cancer.

It’s not easy, and a planning session means a lot more than drafting a trust or writing a check to cover unplanned expenses. For me, it has included a host of things I never thought I’d have to deal with like educating my parents on “elder scams,” unravelling a lifetime of complex finances, and researching care options. And every step of the way, you can’t help but think: If only we’d planned for all of this a decade ago, it would be so much easier on all of us.

That’s precisely why many of your clients need your help, and it’s why it’s important to start the conversation now—before it’s too late.

How can you help your clients plan for the inevitable? The first step is to help your clients initiate what can be a difficult conversation with their parents. Family dynamics, role reversals, and denial are just a few of the reasons families avoid talking about next steps when it comes to aging. But it’s inevitable that older parents will need help from their children.

Give them a way to ease into the conversation with their parents by doing something simple: let them blame you. “My advisor asked me to gather some information, and I need your help.” Then give your clients the tools they need to be successful. Arm them with clear talking points and a list of documents and other information to ask for, including:

1. What health insurance coverage do your parents have? Is it covering their current expenses?

As healthcare costs rise, Medicaid and Medicare often aren’t sufficient, which means out-of-pocket expenses rise. It’s important to evaluate insurance coverage now, as well as to project into the future as health declines.

Keep in mind that Medicaid and Medicare plans change every year, as do your parents’ healthcare costs. Be sure they understand the differences between the plans and are choosing the most appropriate option—including prescription coverage.

2. What is your parents’ cash flow today? Are their expenses aligned with their savings?

Many people (of all ages) don’t track monthly expenses. For retirees on a fixed income, aligning cash flow with resources is particularly important to ensure they don’t outlive their assets. If your parents’ assets are dwindling too quickly, it’s time to take action now to avoid worse problems down the road. It’s important to look at volatility in their investments, their risk tolerance levels, and changes in their tax levels to be sure they have enough assets to cover what may be a longer life than they’ve planned.

3. Have you talked about alternative housing if your parents can’t stay in their own home?

It’s seems to be a mantra with aging seniors: “I’m never leaving my home! I’m going to live here until the day I die!” That might be great in theory, but it often becomes an impossibility when poor health changes the rules.

Talk about what situation would warrant a move and, if it’s needed, where your parents would prefer to live. Independent and assisted living facilities are common, but many have multi-year waiting lists. If “aging in place” is a realistic option, look at the costs of in-home care versus a similar level of care in a facility. Lastly, discuss a plan to be sure neither parent becomes a “prisoner in their own home,” unable to live a healthy, happy life because they can’t leave their ill spouse unattended.

4. Are both parents aware of and involved in financial decision-making? Are there “checks and balances”?

In many relationships, one spouse is responsible for most or all of the financial decision-making. Since no one knows whose health will fail or who will die first, it’s vital that both parents understand how much money they have, where it’s going, and how their investments are being managed. See if you can get them to agree to hand over the task of financial management if one or both of them begin to show signs of dementia or failing health.

5. May I see copies of your wills, trusts, and life insurance statements?

For many seniors, the administration of planning documents is overwhelming. They may have a will, but it may be outdated or incomplete. If they have a trust, is it an irrevocable trust? A charitable trust?

If they have life insurance, do they really need it at this point, or are they paying expensive premiums for a policy that simply doesn’t make sense? Options such as selling life insurance policies in the secondary market have uncovered assets many seniors never knew existed. Details matter, and understanding what’s in place today can help you advise them about making important changes if they’re needed.

6. Where do your parents store all their documents, accounts, and important papers?

It used to be simple: most people had a nicely organized file drawer of important documents, locked with a key. Today, important documents can be anywhere on the Internet, which means documents and even complete accounts risk being lost forever unless they’re carefully tracked and organized. Ask where they keep hard copy documents, as well as for a list of all bank, investment, and other accounts, including user names and passwords.

Set up a shared folder in Google Docs or Dropbox to be sure you always have the most current versions of their important documents. Many banks and investment firms offer “online safe deposit boxes” that make online storage even more secure. Whatever method you choose, help them create an “online file cabinet”—and get the key!

As an advisor, multi-generational planning is nothing new. If you’re doing it right, you have smart plans in place to wisely and tax-efficiently transfer your clients’ wealth to the next generation. Now is the time to add the flip side of multi-generation planning, by helping your clients plan for the physical, financial, and emotional care of their aging parents.

By tackling these issues before it’s too late, you have an opportunity to not only do the right thing for your clients, but also to strengthen and expand your client relationships, and take the concept of client service to a whole new level.

Matthew Paine is Senior Vice President, Head of Key Accounts and Appointed Agent Sales at GWG Holdings.  Mr. Paine started his financial services career with AXA Advisors, developing marketing strategies for the North Central Region and building his personal practice. Since 2008, he has lead sales teams in raising capital in various assets classes ranging from the Life Insurance Secondary Market, Multi-Family Real Estate, Conservation Easements, and MBS Hedge Funds/Fund of Funds. Mr. Paine has a BA in Marketing/Management from the University of St. Thomas in St. Paul, MN and holds FINRA Series 7 and Series 63 licenses through Emerson Equity, LLC. Member FINRA/SIPC.

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Alternative Beta Strategies: Alpha/Beta Separation Comes to Hedge Funds

Alternative Beta Strategies: Alpha/Beta Separation Comes to Hedge Funds

Written by: Yazann Romahi, Chief Investment Officer of Quantitative Beta Strategies, J.P. Morgan Asset Management

A quiet revolution is taking place in the alternatives world. The idea of alpha/beta separation has finally made its way from traditional to alternative investing. This development brings with it a more transparent, liquid and cost-effective approach to accessing the “alternative beta” component of hedge fund return and a new means for benchmarking hedge fund managers.

The good news for investors is that the separation of hedge fund return into its components—rules-based alternative beta and active manager alpha—has the potential to shift investing as we know it. These advancements could democratize hedge funds and, at long last, make what are essentially hedge fund strategies available to all investors—even those who aren’t willing to hand over the hefty fees often associated with hedge fund investing.

A benchmark for alternatives

With respect to traditional equity investing, we have long accepted the idea that there is a market return, or beta—but this hasn’t always been the case. Investors used to assume that to make money in the stock markets, one needed to buy the right stocks and avoid the wrong ones. The idea of a market return independent of skilled stock selection seemed ridiculous to most market participants. Yet today, we would never invest in an active manager’s strategy without benchmarking it against its respective beta.

Interestingly, hedge fund managers have been held to a different standard. Investors have been much more willing to accept the notion that hedge fund strategy returns are pure alpha, and that their investment returns are based entirely on the skill of the fund manager. That notion explains why investors have been willing to accept a “two and twenty” fee structure just to access what has been perceived as one of the most sophisticated and powerful investment vehicles available.

In thinking about the concept of beta, consider its precise definition—the return achievable by taking on a systematic exposure to an economically compensated risk. In traditional long only equity investing, the traditional market beta has been further refined as a number of other risks have been identified that are commonly referred to as “strategic beta.” These include factors such as value, momentum, quality and size. But no one ever said that these risk factors must be long-only.

Over the past decade, as more hedge fund data became available, academics began to disaggregate hedge fund return into two components: compensation for a systematic exposure to a long/short type of risk (alternative beta), and an unexplained “manager alpha.” What they found is that a significant portion of hedge fund return can be attributed to alternative beta. That fact has turned the tables on how we look at hedge fund return. With the introduction of the alternative beta concept, hedge fund managers will have to state their results, not just in terms of total return, but also as excess return over an alternative beta benchmark.

Merger arbitrage—an alternative beta example

The merger arbitrage hedge fund style can be used to illustrate the alternative beta concept. In the case of merger arbitrage, the beta strategy would be the systematic process of going long every target company, while shorting its acquirer. There is an inherent return to this strategy because the target stock price typically does not immediately rise to the offer price upon the deal’s announcement. This creates an opportunity to purchase the stock at a discount prior to the deal’s completion. The premium that remains is compensation to the investor for bearing the risk that the deal may fail.

Active merger arbitrage managers can add value by choosing to invest in some deals while avoiding others. Therefore, their benchmark should be the “enter every deal” strategy, not cash. In fact, the beta strategy explains the majority of the return to the average merger arbitrage hedge fund. And it doesn’t stop there. Other hedge fund styles that can be explained using alternative beta include equity long/short, global macro, and event driven. Note that the beta strategy invests in the same securities, using the same long/short techniques as the hedge fund strategy. The difference is that the beta strategy is a rules-based version that can become the benchmark for the hedge fund strategy. After all, if a hedge fund strategy cannot beat its respective rules-based benchmark (net of fees), an investor may be wiser to stick to the beta strategy.

Implications for investors

What does all this mean for the end investor? Hedge funds have traditionally been the domain of sophisticated investors willing to pay high fees and sacrifice liquidity. Alpha/beta separation in the hedge fund world means that investors can finally choose whether to buy the active version of the hedge fund strategy or opt for the passive (beta) version. Hedge fund strategies can be effective portfolio diversifiers. Now, through alternative beta, virtually all investors can access what are essentially hedge fund strategies in a low cost, liquid, and fully transparent form. For investors who haven’t had prior access to hedge funds, this could be welcome news. Not only can investors look at an active hedge fund manager’s strategy and determine how it has done compared to the systematic beta equivalent, they can also invest in ETFs that encapsulate these systematic strategies.

When looking at one’s traditional balanced portfolio today, there are plenty of questions around whether the fixed income portion will achieve the same level of diversification it has provided in the past. After all, with yields still low, there is little income return. Additionally, the capital gains that came from interest rate declines are likely to reverse. With fixed income unlikely to adequately fulfill its traditional role in portfolios, there is a need to find an alternative source of diversification. This is where alternative strategies may help. For investors seeking to access diversifying strategies in liquid and low-cost vehicles, alternative beta strategies in ETF form are one option.

Looking for an alternative to enhance diversification in your portfolio?

For investors looking to further diversify their overall portfolio, JPMorgan Diversified Alternatives ETF (JPHF) seeks to increase diversification and reduce overall portfolio volatility through direct, diversified exposure to hedge fund strategies using a bottom-up, rules-based approach.

Learn more about JPHF and J.P. Morgan’s suite of ETFs here


Call 1-844-4JPM-ETF or visit 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.
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