Slideshow Refining Clients' Asset Allocations

  • November 07 2013, 11:09am EST

<b>Changing the Recipe</b>

by Lauren Barack: built by Kayan Lim

As advisors look to protect clients' assets, and lock in steady income streams as well, they're changing the ingredients they use. They're adding new products to the mix with an eye—always—toward allaying the anxieties of their conservative clients.

Images: Fotolia

<b>1. Careful With the Nest Egg</b>

When it comes time to start setting aside funds for retirement and building an income plan, banking clients are often very careful with the nest egg they've spent their working lives to accrue. It’s hardly surprising that variable annuities have traditionally been a favorite in this space, offering guaranteed payments, plus living benefit and death benefit riders. But with changes in recent years, including higher fees from insurance companies, plus the ways the firms have structured the products, both advisors and their clients are beginning to eye variable annuities with more scrutiny.

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<b>2. Fixed-Income Not the Fixture it Once Was</b>

Bonds, especially long-term bonds, carry the risk of locking clients’ funds away for a stretch of time. And given today's environment of rising interest rates, declining bond values are a strong possibility. So advisors are inspecting other pastures for clients' hard saved assets with REITs, structured notes, step-up bonds, life insurance and annuities from indexed to deferred income annuities all on the rise.

<b>3. Growth in REITs Inevitable</b>

REITS were once difficult for bank advisors to access for their clients. But today, they are an option that has them buzzing. Experts say sales aren't that high yet, but from signs in the market, they believe growth of REIT sales is inevitable in the banking channel over time.

That rush to get in front of advisors from REIT players is coming as the bank channel is embracing both illiquid REITs, and publicly traded. For non-traded REITs, advisors like the dividends that the products throw off, plus their ability to gain value.

<b>4. The Power of Structure</b>

Structured notes present a hybrid of options and are usually packaged with some debt and a derivative, giving some downside protection to the investor. Diversification is key, and that means employing a mix of mutual funds, fixed rate annuities and structured notes. For clients focused primarily on protecting their assets. They've recently grown in popularity in the retail market for certain clients, like the middle to mass-affluent area.

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<b>5. Annuities Still Being Eyed</b>

The staple for clients concerned about principal protection has been annuities because of their ability to hedge against volatility. With clients typically in the $100,000 to $200,000 range, every dollar counts as they build income for their retirement. Since many of these clients are CD buyers, they’re often conservative and looking to play it safe. But in today's market there just isn't enough yield from CDs and traditional money markets.

<b>6. Indexing Good for Simplicity</b>

For clients looking for more simple products, indexed annuities are a possibility. Indexed annuities, along with hybrid indexed annuities have popped up more among bank advisors in recent years. Because they can lock in a range of returns, even as they limit their upside, they're appealing to a range of advisors.

<b>7. Life Insurance Resurgence</b>

Low volatility is practically a definition of life insurance. And that's one reason that it has started to come back in vogue. Often considered a plain vanilla option, sales hit a record high in 2010, but then trailed off by the first half of this year. Yet many in the bank channel — both analysts and advisors alike — believe these products could increase sales as the search continues for safer options.

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<b>8. Putting it All Together</b>

Having access to investment tools — and understanding how to best use them — is the way to best serve their clients. Whether that's life insurance, step-up bonds, REITs or other options, having a deft hand at knowing how to mix these into a financial plan is needed — particularly in today's market, with volatility continuing, recent chatter about debt ceilings being breached, and the bond market in uncertain territory. Communicating to clients what can be achieved — and what may not be able to come to fruition — is crucial as well. For advisors, keeping their clients content and feeling secure- while also protecting their investments-is the mix they strive to create.