Targeting "wrap" fee programs. | Copyright Chip Somodevilla, Getty Images
Wrap fee programs - when an investment advisor "wraps" a portfolio's advisory fees and commissions into a single, all-inclusive fee - are designed to protect clients from churning. But even these accounts can be misleading, according to the Securities and Exchange Commission. The regulator has charged Richmond, Va.-based RiverFront Investment Group with failing to properly disclose fees charged to clients inside the wrap account. The subadvisor used additional brokers beyond the wrap program sponsor to execute the majority of its trading, the SEC said, adding more costs to clients. In addition, the firm did not disclose the frequency of the trades. "Investors in wrap fee programs pay one annual fee for bundled services without expecting to pay more, so if subadvisors like RiverFront trade in a way that incurs additional costs to clients, those costs must be fully and clearly disclosed up front so investors can make informed investment decisions," said Sharon Binger, director of the SEC's Philadelphia regional office.
It's OK to have fun pre-retirement too.
A new report by financial advisor and Nerd's Eye View blogger Michael Kitces reveals that most people will never draw down their retirement portfolio. Why? Because after years of saving and saving and saving, it's become too late to change their behaviors, he tells Chuck Jaffee on MarketWatch. "You're not sure how long you need it for and you don't want to run out of money early," Kitces explains. "And then you've got a little bit of market volatility and inflation for years and, suddenly, the challenge of trying to spend down the pool of money - if you want to - gets surprisingly difficult." Instead, he suggests that clients have some more fun in their accumulation years, spending a bit more, while also not mortgaging away their retirement. Of course, the biggest issue is the uncertainty of death. No one knows when they're going to go. "If you help people be flexible in their planning - the way most people are flexible in their lives anyway - you can start with a higher level of spending and not need as much of a nest egg," Kitces says. "You don't have to be perfect, and you don't have to be so scared that you won't save enough or won't be able to live comfortably in retirement."
Mentors are important.
Millennial advisors feel limited by their generational label, and as such, a Hartford Funds report suggests, it's crucial firms avoid treating all young talent the same. "It's important that financial advisory firms are careful when identifying millennial talent and treat them as individuals, as opposed to viewing them as part of a group that is often stigmatized in the workplace, news media and beyond," said Bill McManus, director of strategic markets at Hartford Funds. While the report concludes that every millennial advisor has individual needs, it manages to offer a few guidelines to help firms attract and groom young talent, such as encouraging a work-life balance, allowing for remote accessibility and flexible work hours, and pairing new hires with senior-level mentors. And for young advisors struggling to gain the trust of older clients, the report suggests advisors share information about themselves, their families and other clients at similar life stages as a weary investor. "The relationship aspect of the industry isn't going to change; if anything, it will become more important," McManus said. "Once you start dealing with complex financial situations or the market takes a turn, everyone wants the comfort of knowing that they have a trusted person they can call."
