Last Advisor Standing: The One Who Understands De-Accumulation



For senior managers at the peak of their earning powers, relying on two or more financial advisors isn’t unusual, and high net worth investors often lean on a cadre of advisors to help them with complex asset transfers and estate planning.

But the older you get, the more likely investors are to find themselves with just one: the advisor who understands asset de-accumulation. Advising workers how to amass assets is different from advising them on the drawdown of those assets.

“People at 50 have three financial advisors,” said Tom Hegna, an Arizona-based financial advisor and author of Paychecks and Play Checks. “At 60, they have one. The one who stays is the one who understands de-accumulation.”

It turns out that putting money into an investment portfolio is a lot easier than taking money out. Asset allocation, diversification and dollar-cost averaging, the standard strategies for asset accumulation over the long term, is not the same as receiving income from that portfolio.

Hegna said it is a good idea for advisors with baby boomer clients, many of whom started to turn 65 in 2011, to sharpen their portfolio income skills. This is to ensure they are well versed in the ways of asset de-accumulation.

Clients don’t realize that some advisors are better than others at generating income from a retirement portfolio, and that taking money – when and how much – out of the portfolio is far more important to a retiree than putting money in.

Dumping an advisor after he or she has helped a client through 10 or 15 years of asset accumulation, then turning around and hiring an income retirement superstar isn’t an easy decision, and one many clients would rather not face.

Reviewing the advisor relationship is critical as investors move from accumulation to withdrawal, and it should become part of the retirement planning process as investors switch gears, according to financial advice tip sheets.

“As soon as you take money out of your portfolio, all the rules change,” Hegna said in an interview with InsuranceNewsNet.

He points to the order of return, or sequence-of-return risk as one example. Markets that decline in the accumulation phase, when adding to principal and interest, don’t matter nearly as much as markets that decline in the withdrawal phase, when subtracting from principal.

For investors in the first few years of the payout phase, declining markets in particular can be brutal. Even the long-standing 4 percent rule advocated years ago by California-based advisor William Bengen has come into question as people live longer.

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“If you lose money early in retirement, you are in big trouble,” Hegna said. “It’s highly, highly unlikely that you are going to survive over a long period of time because of the order of return. That money will never, ever have a chance to grow again.”

Jonathan Guyton, principal of Cornerstone Wealth Advisors in Edina, Minn., writes that a “dynamic” withdrawal strategy, in contrast to a static withdrawal strategy, will lessen the impact of the sequence-of-return risk.

Guyton notes in a Journal of Financial Planning article titled “Sequence-of-Return Risk: Gorilla or Bogeyman?” that a dynamic approach that allows for adjustments to the retirement portfolio in midcourse “can go a long way in blunting the impact of those economic circumstances that lie beyond our control.”

The specialist nature of the advice necessary in the withdrawal phase is exactly why some financial advisors are better than others when it comes to the deaccumulation phase of life, and why continuing professional educational institution issues the Chartered Retirement Planning Counselor designation.

Inflation, taxes and longevity risk – living beyond your expectations – can also claim huge bites from retirement portfolios.

Advisors and investors are more familiar with the accumulation phase than they are with the withdrawal phase because the 76 million baby boomers were in the prime of their accumulation years in the 1990s, in the midst of a great bull market, Hegna said.

The 401(k) account balances – which were visible daily over the Internet for the first time – kept rising and boomers heeded the clarion call of diversification, asset allocation and dollar-cost averaging. Now that all those baby boomers are counting on the withdrawals, advisors need to learn about income strategies.

“For starters, not one financial planning issue of the accumulation phase — save possibly education planning — is removed from the table,” Guyton writes in a Journal of Financial Planning article titled “The Withdrawal Policy Statement.”

“Many of these issues, including construction of the income ‘paychecks’ to fund lifestyle goals, tax efficiency on both a short- and long-term basis, and assembling integrated healthcare planning solutions to name just three, become more complex,” Guyton said.

For many advisors, learning about withdrawal will feel as if they were just getting started again.

is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at

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