number of structured product pricing requests on [our] platform doubled, possibly implying an increased use of structure
solutions to build more efficient portfolios,” he explained.
Lemos adds that previously, structured products were seen
as “too complex to understand or too difficult to use. But new
technology has made it easier for advisors to “understand how
these products can potentially improve client outcomes.”
Baby boomers also are bringing their own portfolio issues to
the advisory world, points out Commonwealth’s Price: “Due
to the large number of baby boomers in or nearing retirement,
there is going to be an increasing need for outcome-oriented
portfolio solutions in the coming years.
“The model portfolios landscape has been dominated by
solutions designed for the accumulation phase, but I feel like
there will be a significant need for portfolios that accommodate the decumulation phase of retirement. Model portfolios
that target specific retirement income goals and/or ranges will
be prevalent in the coming years,” he explained.
Michael Finke, the American College of Financial Services
professor of wealth management and chair in economic
security, has a similar view. “Boomers are also the first
generation of retirees that will rely on spending down their
defined contribution savings to fund a lifestyle in retirement,”
“The focus of defined contribution portfolio construction
has been accumulation. Now retirees need to invest for spending. This changes the dynamics of the traditional portfolio
model because the objective is to fund spending goals over an
unknown lifespan,” according to Finke.
“This means paying attention to how retirees spend their
money, when they need to spend the money, and how to pro-
tect them against the risk of outliving savings. Plan sponsors
are aware of the benefits of keeping employees in low-cost
fiduciary plans after retirement and are looking for ways to
give them an investment that makes it easier for them to live
comfortably,” he added.
Target date funds with retirement income as the goal “will
continue to gain traction as an investment approach for retire-
ment,” said Marlena Lee, head of Investment Solutions at
Dimensional Fund Advisors.
“TDFs that robustly manage the key risks to retire-
ment income can reduce the uncertainty around affordable
income in retirement and enable advisors to provide mean-
ingful information about retirement income to their clients,”
“As a result, advisors using these TDFs can help clients
decide if they need to save more, work more or retire later to
achieve their desired standard of living,” she added.
Like TDFs, “goals-based narratives that reflect stages of
clients’ financial journeys” will become more important,
according to Matthew Schlueter, executive vice president and
president, Wealth Management Solutions, of Advisor Group.
An approach of this broker-dealer network is “to build detailed
narratives around the milestones that clients are striving for
during specific chapters in their lives.
“Early on, clients are trying to ‘build a foundation’ — mean-
ing growing their capital, buying first homes and having
children. Later they’re ‘using their wealth’ as they move up in
their careers and make meaningful investments, such as their
children’s education,” Schlueter explained. “After that comes
‘making their money last,’ as they manage their health, retire
and organize their estates.”
He adds that “these narratives create a financial planning-
based framework that naturally leads to productive conversa-
tions with clients on where they want to go on their financial
journey and how to get there.”
Northern Trust Chief Investment Officer Bob Browne
sees the industry doing a much better job of bridging a gap
exposure in the Retirement and Target portfolios’ glide paths
early in the accumulation years and post-retirement and add
emerging markets and U.S. large-cap core equity strategies to
further diversify the underlying investments.
T-Rowe Price will raise the equity allocation of the retirement glide path at the start of the investing lifecycle ( 30 or
more years from retirement) to 98% equity from the current
90% equity. The firm also will: Hold the 98% equity allocation constant until 30 years from retirement; maintain a 55%
equity allocation at retirement; and raise the equity allocation after retirement, reaching a final 30% equity allocation
30 years after retirement, an increase from the current 20%
allocation, it said.
For the target glide path, the company will boost the equity
allocation of the glide path at the start of the lifecycle to
98% equity from the current 90% and also: Hold the 98%
equity allocation constant until 35 years from retirement;
maintain a 42.5% equity allocation at retirement; and raise
the equity allocation after retirement, reaching a final 30%
equity allocation 30 years after retirement, up from 20%
now, it said.
The firm also added two investment strategies to the
underlying building blocks of several target date products, it
said. Emerging Markets Discovery Stock will be added to all
the firm’s target date strategies, while U.S. Large-Cap Core
will be added mainly to actively managed strategies, it noted.
Bond Model Portfolios
Fidelity Investments further broadened its lineup of portfolio construction capabilities for advisors in the fixed