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24 October Financial Planning By Richard K. Fullmer October 1, 2008 The year 2008 is shaping up to be a nasty year in which to retire. ... Soon-to-be retirees who saw the market take huge bites out of their investment portfolios in just 11 months' time must surely be confused by the wide divergence of opinion on the appropriate exposure to equities going forward. ... So a natural question is: How should retirees configure their portfolios for the long term, while not exposing themselves to inappropriate risk? ...Retirees ... must consider two conflicting elements of risk—the risk of outliving the portfolio because it shrank in a down market and the risk of losing pace with long-term inflation.
It's time we turned conventional wisdom on its head. A common argument is that portfolios with conservative asset allocations may not provide sufficient investment returns in retirement. Even if true, this argument does not mandate that investors should be invested aggressively over the entire retirement period. ... But this could mean taking the most investment risk precisely when it is most perilous to do so. Counter to conventional wisdom, longevity risk can be reduced, on average, by planning for a more conservative portfolio early in retirement and a more aggressive portfolio later. ... The Volatility Bow Wave Effect
It is well documented that people are living longer. ... For retirees concerned about fully funding their golden years, the proper asset allocation depends not so much on their tolerance for investment risk, but their tolerance for longevity risk. What most retirees really care about is not going broke. When a ship plows through water, it creates a bow wave, a V-shaped curl of raw power. [Naval] architects attempt to reduce a vessel's bow wave because it can sap energy and reduce fuel economy. ... The volatility of investment returns is like a bow wave that can sap energy from a retiree's portfolio. ... Reducing the volatility of return at the beginning of a portfolio's distribution period by allocating assets more conservatively helps reduce the bow wave effect, enabling the portfolio to "plane over" rough periods in capital markets. ...Volatility is more bearable in the accumulation phase when the investor has more options available... It is much less bearable in the distribution—or decumulation—phase, when these options are not likely to be available. Further, the impact of volatility is lessened during the accumulation phase because the dollar-cost averaging (DCA) that occurs as a result of making periodic investments throughout the accumulation phase has beneficial effects to the investor. Unfortunately, during the decumulation phase, the often-promoted benefits of DCA disappear and, in fact, work against the investor when cash is flowing out of the portfolio. ... It turns out that the sequence of investment returns is important in the decumulation phase. ... [It] may be that a more conservative portfolio is in order during the early retirement years, in order to get through the riskiest period. Later, it may be safe to move to a more aggressive portfolio. Implementation
Such a strategy can be implemented in a number of different ways. For example, when an "income bridge" approach is used, one pool of money may be invested to fund the first 10 years of retirement and another pool of money to fund the years after that. Even more funding pools may be used under what could be called a laddering approach. In either case, any particular pool could be allocated 100% to a single asset class, such as 100% cash or 100% equity, for that matter. However, the overall portfolio allocation should always take into account the client's tolerance for longevity risk and investment risk. It may serve advisors well to challenge conventional wisdom by reconfiguring their clients' portfolios to protect them against late-stage risks. Retirees have but one retirement to plan for, and there are no "do-overs." Reducing one's exposure to equities early in retirement may increase the likelihood of funding the golden years and preserving wealth. Richard K. Fullmer, CFA, is a senior portfolio strategist for Russell Investments in Tacoma, Wash. 23 October Financial Planning By Jeanne Lee October 1, 2008 These days, small business clients are suffering in two ways. ...[They're] worrying about shrinking revenues and finding enough operating capital to survive this tough economic climate. At the same time, business owners feel the pain in their personal retirement accounts. ... Reach Out
... A slow economy is a perfect time to cement relationships or even to pick up new business. ...Small business clients often need an objective voice to help take the emotion out of financial decisions. "Even the good managers get mired in minutiae and freeze up-even panic," says Andy J. Matysik, managing partner at L.M. Punch & Associates in Minneapolis. ...Financial advisors should guide business owners to review employee retirement plans with an eye toward cutting administrative costs and possibly reducing or temporarily eliminating contributions for employees. A small firm with a 401(k) plan that costs $2,000 a year to administer may be better off switching to Simple IRAs with no administrative costs, especially when the company is no longer able to contribute matching funds. ... Many experts expect tax rates to go up with the next presidential administration. If a business owner's income is less than $100,000 this year, planners might want to bring up the idea of converting retirement assets to a Roth, so that he or she can pay taxes on those assets while in a lower tax bracket. "The business owner can amend the retirement plan to allow in-service, non-hardship withdrawals, then roll it into a Roth," says Pam Dumonceau, president of Consistent Values, a planning firm in Aurora, Colo. Cut Costs
... Many business owners are unaware that changing employee health insurance plans to a high-deductible health plan that is compatible with health savings accounts (HSAs) could reduce their premium expenses by 30% to 50%. "There are not a lot of ways to cut health insurance costs, but if you've got a small employer who is pretty well out of options and has to cut expenses to get over the hump, he or she should look into these high-deductible health plans," says Leon Rousso of Leon Russo CFP & Associates in Ventura, Calif. "For a 15-person group, the savings could be $30,000 or $40,000 a year—which might mean saving one employee." Ordinarily, Rousso says, he would advise that half of the cost savings be shared with employees in the form of contributions to their health savings accounts—accounts that allow individuals to put aside money for qualified healthcare expenses on a tax-free basis. It's a move that's good for morale. However, if a business is struggling to stay afloat, all of the money saved can be used to pay the bills. ... Rethink Expenses
Advisors should also encourage business owners to take some extra time in a slower business environment to take a hard look at their expenses, experts say. ... Vincent Schiavi, president of Schiavi and Dattani in Wilmington, Del., believes that "small business owners need to get their accountants involved and really look at budgeting." An accountant in the industry can tell you if your ratios—like days in accounts receivable, revenue per employee, gross profit margin—are in line. This information can help business owners make decisions such as whether or not to discontinue a product line. Find Cash
Business owners facing a cash crunch may be looking at their personal retirement accounts as a source of cash, though taxes and heavy penalties for early withdrawal make this a poor choice for funding. Advisors can help clients brainstorm creative solutions to short-term cash crunches. If they need money to get the business over a hump, check whether there is some cash value in a life insurance policy as this might be a cheap source of funds. See if there are any business assets that they can collateralize. If there is a line of credit, see if the business owner can apply to the bank for a lower rate. "Interest rates are down, and lines of credit are variable rate, so they can probably renegotiate," Dumonceau says. Succession Planning
In many ways, an economic slowdown is the ideal time to initiate discussions about succession planning. Business owners are often so preoccupied with day-to-day operations that exit-planning issues are left on the back burner. But financial advisors should alert owners who plan to pass their businesses on to family members that they can use this opportunity to take advantage of lowered values. ... It's common for business owners to be trapped in unwanted assets that would trigger a tax headache if sold. Examples include low-basis stocks or bonds outside of retirement plans, equipment, machinery or real estate. ... "A lot of these small businesses are S-corporations, where the tax consequences just flow through to the individual owner," Matysik notes. Now is a good time to sell, he says, since asset prices are suppressed. Also, tax rates are not likely to go any lower. "We are telling clients to realize gains in this or next calendar year, so they can take advantage," Matysik says. Talent Raids
Once the economy turns around, human capital will again be at a premium. Financial advisors should encourage small business clients to position themselves for the next business cycle by snatching valuable talent on the cheap, if they can afford to. ... Explore Acquisitions
For a business owner client whose company is in an expansion mode—even if growth is at a more modest level—this may be a good time to explore acquisitions. If a competitor is struggling, your client may be able to buy that competitor out at a very reasonable price. ... Along the same lines, with commercial real estate values muted, this is a great time for business owners who are anticipating an expansion in the near future to consider purchasing warehouses or even acquiring additional office space. ... Yet drastic times call for drastic measures. And when drastic times pass, small business clients who have come through the storm intact with your assistance will want to bring you more business.
Jeanne Lee is a business, personal finance and healthcare writer living in New York. Her work has appeared in Fortune and Money. 21 October Employee Benefit Adviser By Lydell C. Bridgeford September 1, 2008 Top-down buy in is consistently listed as a key component of wellness program success by health and productivity experts. ... [Anytime] an adviser or employer can work shoulder-to-shoulder with employees engaged in wellness programs, they have a better opportunity to inspire, influence and steer behavior. Bill Germanakos was able to do this because his personal journey to health was well publicized at work - and nationally. Last year, Germanakos, a medical sales representative for Quest Diagnostics, won top prize on "The Biggest Loser." He lost 164 pounds - 49.1% of his body weight - in 34 weeks, dramatically improving his health. In April, Quest Diagnostics appointed Germanakos, who had previously led a sales team selling new technologies, as its director of employer wellness initiatives... Leading by example ... Quest Diagnostics was named a Gold Award winner among the 2008 Best Employers for Healthy Lifestyles - making a case for the strength of a message sent by HR execs and advisers who practice what they preach. The company's HealthyQuest employee wellness program, has resulted in more than 70% of participants achieving an assessment rating that indicates a low risk of developing major health problems, compared to 60% when the program began. Programs include physical fitness, weight, and stress management resources, tobacco cessation counseling and efforts to improve the healthful quality of food choices at onsite cafeterias and vending machines. The company is beginning to see a positive ROI from the programs and employees appreciate the changes in their lifestyle, says Fred R. Williams, director of health benefits management at Quest Diagnostics. ...Having Germanakos share his wellness story encourages others to share their own, which gives wellness participants confidence that they can make a change as dramatic as his, whether it's quitting smoking or losing weight, notes Williams, adding that improving health is a metric that the company tracks. Unexpected payoff Thom Mangan, president of the benefits division of Hub International, Northeast, has found that making his personal commitment to health and wellness public has helped make the wellness conversation with clients more meaningful. ... Mangan, whose goal is to lose 30 pounds, has been steadfast in his wellness approach. ... He's also ordering salmon, rather than steak, and often skipping the cocktails when he's out and about with clients and prospects. "I'm going through it. I know it can be done. And it's not easy," says Mangan. ... Now, Mangan has the opportunity to frame his wellness services differently and push clients a little more forcefully than he has in the past. Neil Simons, president of Rockville, Md.-based Independent Benefit Services also thinks wellness is a crucial element to lowering premiums and developing a happier, more productive workforce. He attributes his advisory firm's success with implementing wellness programs for clients to IBS' internal wellness advocacy. "I don't know if [participating in wellness] is critical to your success in business, but I do know it helps if you are practicing what you preach. ..." says Simons. ..."We have a fitness guru on retainer that we bring in to talk to our clients. And he comes in to our office every Monday and takes everybody's blood pressure every week. ... And he keeps everybody moving and thinking about fitness," says Simons. ..When advisers and employers share in employees' wellness journey there is also the opportunity to share additional tips and tactics on how to accomplish health goals. "I am making public appearances and letting people know what I have accomplished," Germanakos says. "I am trying to spread the word and educate people about health and wellness ..." ...
EBA Managing Editor Molly Bernhart contributed to this story.
Achieving and maintaining behavior change Motivating participants is a major challenge facing worksite wellness. But maintaining the healthy behaviors participants learn to embrace through the plan is even more difficult. Here are some tips for overcoming obstacles that could cause employees to fall back on bad behaviors once the honeymoon is over: Meet people where they are. The smoking cessation strategy for a 50-year-old who smokes three packs of cigarettes a day should differ significantly from the treatment plan for a 21-year-old who consumes just three cigarettes every other day. Personalize the experience. ... Lifestyle coaching programs can be an effective way to help people create an individualized strategy, as coaches can assess each individual's specific needs, develop a customized action plan, solve problems and prevent setbacks. They also can help identify the emotional triggers of unhealthy habits. Measure success. ... Participants need to feel motivated to continue making progress, which may include having increased confidence, experiencing psychological mood changes and finding the right support network. Matthew M. Clark is a clinical psychologist with the Department of Psychiatry and Psychology at Mayo Clinic in Rochester, Minn., and a medical director for Mayo Clinic. 17 October Use a gimmick to attract attention--and customers--to your business
MyBusiness October/November 2008 by Geoff Williams In 2005, the beverage maker Snapple attempted to create the world’s largest ice pop made of its own product. The frozen bar--hoisted above Times Square in New York City--measured 25 feet tall and weighed 17.5 tons. But it melted much faster than expected, prompting panicked tourists to run as a sticky, sugary mess of strawberry-kiwi flavored fluid flooded the streets. That probably wasn’t the intended outcome, but at least it got people’s attention. In this sluggish economy, concocting a gimmick for your business can mean the difference between no sales and new sales. Even better, gimmicks (unless you want to try to top Snapple’s efforts) don’t have to cost a lot of money to implement--which means if they don’t work, there’s no harm done. Here are three tips for creating the right gimmick for your small business: 1. Show customers that you feel their pain.
Many businesses have given out discounts to customers in the form of free gas cards, an idea that revolves around a gripe that everyone shares. But Cole Durbin, the owner of Padre’s Modern Mexican (www.padresmexican.com), a restaurant in Phoenix, actually came up with a unique way to show the public he understands his clientele’s problems beyond the pump. During "Recession Happy Hour," Durbin offers a free drink to anyone who brings in a foreclosure notice. Inexpen-sive and clever--and the media noticed. CNN did a story on his business, and, well, we’re mentioning it, aren’t we? 2. Steal from the greats.
Provided you aren’t taking intellectual property--like another company’s logo--there’s nothing wrong with borrowing ideas that have worked for others and using them for your own marketing devices. But if you’re going to do that, advises Subscriber-Mail’s Jordan Ayan, borrow from the best. A huge fan of the late George Carlin, Ayan, who is founder and CEO of the e-mail marketing firm, wrote a white paper called "The Seven Dirty Words You Can’t Say in Subject Lines; Plus 100 Others You Shouldn’t Use Either." It turned out to be the most frequently downloaded article from his Web site, www.subscribermail.com. 3. Think personal, not professional.
Amy Maurer, who owns a media consultancy business in Washington, D.C., has an inexpensive marketing gimmick that she uses with her present and potential clients. She bakes cookies and hand-delivers them, insisting that it’s helped her triple her business clientele. "I think it immediately tells potential clients that I am different," Maurer says.
NFIB.com
For more tips on making your business stand out from the competition, check out the "Sales and Marketing" section of www.NFIB.com/toolsandtips.
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