Timothy Carlson • Worcester, MA
Integrated Financial Partners, Inc. • LPL Financial
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I am dedicated to taking the mystery out of complex financial issues for clients. I emphasize education and make sure my clients are well-informed about financial-planning options and recommendations we believe are well-suited for their situation. Our planning process focuses on clients and their needs, not on prepackaged solutions or ideas. We are committed to providing our clients with the information they need to make timely, informed decisions about their financial future.

I have found that clients of all levels of financial sophistication can benefit from our planning process. Even if someone is relatively savvy about investing, planning for their financial future takes careful consideration. A new stage in life requires a fresh look at a financial strategy. For those who are starting to think about retirement or are already in it, we ask and then attempt to thoroughly answer the question, “Do you have a reliable, tax-efficient stream of income that will enable you to enjoy the fruits of your life’s labor in retirement?”

Our lifetime income model is a very important tool we use for retirement planning. While this approach is very disciplined and process-oriented, the outcomes are customized for each client. The top financial worry for most people is not having enough money to retire. The lifetime income model has many components but centers around three core areas: (1) What income level will be required to support their desired lifestyle in retirement? (2) What asset level will be needed to support that income, and how can those assets be suitably allocated? (3) What assets should be utilized at various points in retirement?

These areas form the basis for our detailed fact-finding and analysis. The lifetime income model is a time-based approach for retirement income planning that manages risk on several levels: through the use of different time horizons for distribution of assets, through varying allocations for different asset buckets, and through utilization of investment risk-management tools designed to reduce portfolio volatility. The goal is to help clients meet their income needs at each stage of retirement, while allowing other assets to grow in a prudent fashion until they are needed. This is a highly structured process, but in the case of each client, the quantity of portfolios, the asset allocation mix, and the time horizons are all based on individual circumstances, needs, goals, and risk tolerances.

Our firm believes, and I am in total agreement, that risk management has to be an important component of everything we do for clients, both in an investment sense and for other areas of clients’ financial plans. For the investment piece, tactical portfolio management fits well with our lifetime income model.

I saw this firsthand while working with the firm’s case design team on portfolio analysis. I looked at dozens of client and prospect portfolios and analyzed how they performed during the 2007–2009 credit crisis and all the way back to the dot-com crash. If a portfolio was passively holding investments, it obviously did terribly and suffered some quite significant drawdowns. These buy-and-hold portfolios were subject to the worst of the overall market’s losses—that method of managing client money just isn’t good enough from our perspective. It also clearly raises other issues for retirees, such as the sequence of returns and whether or not they had the emotional fortitude to really stick with a buy-and-hold approach.

We use quantitative and rules-based strategies that can adjust to market conditions, good or bad. We are not targeting market-like returns in order to make a client successful with their plan. What we aim for are returns generally in the mid-single digits, maybe a half to three-quarters of what the market might historically do on an average annualized basis. The key difference is that we have strategies that are agile and responsive to market conditions, and are designed to get out of the way of the worst market periods. These might be broader index trend-following strategies, equity sector rotation strategies, or tactical fixed-income strategies, for example. They can change levels of market exposure, move to cash if necessary, and, with some strategies, perhaps even move to a position that is inverse the market. The real goal is to deliver reasonable and controlled asset growth while avoiding huge drawdowns.

We do not believe that a passive approach by itself is strategically sound for the long term, especially for clients nearing the distribution phase. Passive strategies can have a role in a portfolio approach, but they need to be wrapped into an overall financial plan and investment strategy with strong elements of risk management. If an investment plan is meeting our goals, which are relatively conservative, our clients have better odds of achieving their retirement objectives. Anything above that is great. But we align our benchmarks to our strategy requirements for each bucket, not a market index. This is what we think leads to a stronger probability for successful long-term retirement and investment planning.

We know that we cannot be everything to every client, meaning we cannot be their accountant or their attorney, but we do think we can help coordinate the many aspects of their financial lives. We work closely with other trusted advisors, and that is a cornerstone of how our firm operates.

IFP has also developed a model we share with clients that is based on a pyramid philosophy of looking at the needs and wants of clients and their families, called “The Family Legacy Pyramid.” The foundation or first level of the pyramid is concerned with the essential needs of a client, and we label it “Am I OK?” This covers areas such as retirement planning, asset preservation, life insurance requirements, health-care and long-term-care coverages, property and liability coverages, and tax-mitigation strategies.

We call the second level of the pyramid “Is my family OK?” That covers areas such as estate planning, asset protection, education funding, business succession planning for small-business owners, and many other topics critical to ensuring that the family of a primary earner is well-protected and provided for in key areas. For example, is there a special-needs child who requires specific future financial arrangements? Or a grandchild who will need help with college expenses? Will a client have significant elder-care needs in the future? We can help address these issues.

The top of the pyramid is labeled “Is my community OK?” This asks, “Will you be able to give back to your community, your church, your charities, or other important entities in the future?” As the affluent baby boomer generation ages, this is becoming an increasingly important priority for many clients.

If we are able to help clients look at their future needs in this fashion, and have a positive overall impact on their financial lives, that is what makes our role extremely worthwhile and personally satisfying. I believe this holistic approach to financial planning is a differentiator for our firm and, overall, has helped greatly in our efforts to build strong and lasting client relationships.