I’ve had the great opportunity to attend an event where I was able to listen to Dr. Craig Israelsen speak, a professor who developed a multi-asset balanced portfolio in 2008. Dr. Israelsen has written a book about this concept, which he describes with a spot on metaphor. When you make great salsa, it’s all about diversification according to Dr. Israelsen. Only by adding diverse ingredients together can we achieve the desired outcome. However, he correctly states that there are some ingredients in salsa that most would never eat individually, such as hot peppers or Tabasco sauce. But without the hot ingredients, the salsa would be flat. That accurately describes how to approach a truly diversified investment portfolio. I’ve written about this topic, specifically in regards to thinking about the future through a different lens.  This topic couldn’t be more important given today’s overall financial landscape, and I’d like to dive in a bit further in addressing whether or not your current advisor is right for you.

The rationale behind Dr. Israelsen’s approach is simple. Raw performance should not be the primary issue, but it shouldn’t be ignored. This general concept should be embraced by investors of all walks, whether you’re just getting started, or you’re nearing the distribution phase of retirement. Every advisor wants to help their clients in the accumulation phase (working years), but the most crucial part is the phase that often goes overlooked, and that’s the distribution phase. This phase makes the accumulation stage look like child’s play, and I am sincere about that statement. Too many advisors use the “herd approach”, which essentially lumps all of the clients into one management style. Take this for instance. Let’s say your advisor just called you and stated that he feels the market is overvalued, and he recommends shifting 20% of your portfolio into cash. Your first response will likely be “sure, that sounds like a prudent move.” But in fact, he could very well have called his entire book of business and gave the exact same advice. Ask yourself if that’s truly the best advice you could have received. Now, ask yourself if that advisor is truly the right one to help you prepare for later in life, when you begin the distribution phase of retirement.

Why is the distribution phase so important? When you’re still working, it’s your income that allows you to withstand the natural ebbs and flows of the markets, but what happens when you cannot afford a portfolio or advisor who asks you to remain patient when you need to live in retirement? This is the difference between a financial advisor who is solely focused on total return, rather than retirement income planning, and that difference is as big as an ocean. The former describes the majority of today’s financial advisors, but the latter is the one who is focused on multiple facets all at once (think different ingredients in salsa). These include, but are not limited to, producing income, tax efficiency, estate planning, charitable desires, income protection and more. Here’s the crucial component to a financial advisor who is truly a retirement income planner – they are doing all of this regardless of the market conditions. So why aren’t more advisors doing this for clients? Quite simply, it’s hard work. Don’t take this as a suggestion to dump your advisor tomorrow, or as a slam against other advisors. There are plenty of other good advisors who are trying to do their best for their clients. But if you are asking a question like “how will income be created in retirement?” and the blanket response is utilizing a 4% withdrawal strategy that is adjusted for inflation, you need to seriously consider if this strategy will outlive you, because at the end of the day that’s the end goal.

As I noted in a previous article titled “Risk versus Risk“, retirees are living longer, so don’t think you’ll simply die before you run out of money. In today’s environment, where the entire globe is seemingly on edge about various geopolitical or social issues, the markets no longer allow for the old way of thinking when it comes to investing. This new era has only amplified what happens in the markets, good or bad, which introduces the next question you should ask your advisor: “Have you put my portfolio through a stress test?” This important issue is described at length in “Risk versus Risk“, as a nest egg can look pretty on paper without subjecting it to any outside factors. In the example from my previous article, I utilized three portfolios, all with the same starting amount and the same 5% annualized rate of return. However, all three performed much differently simply by focusing on the sequence of returns. Take that example a step further, by implementing inflationary risks or different taxation levels, and you’ve made it even more important to stress test your portfolio BEFORE you reach the distribution phase.

Whether you realize it or not, you’ve almost certainly dealt with this scenario in life. Whether it’s moving from a pediatrician to a family doctor, or a high school coach to a higher level specialist, the concept is the same. Once you move beyond the early years (think accumulation), it might be time to lean on someone with more sophisticated skills and abilities, who looks at the entire picture and not just accumulating assets. Accumulation is the fun part, but distribution is the more challenging phase of retirement, and there’s no blanket way to address it. Sounds a bit like making salsa, right? You need some very similar ingredients, but only by adding diverse elements can we truly achieve the desired outcome, and I’m guessing there are countless ways to arrive at the same end result, which is what makes this journey called retirement so exciting!


Adam M. Sutton is the founder and president of Cornerstone Financial Partners. Adam is a financial planning professional, specializing in retirement income planning and wealth optimization strategies. He is a Series 66 licensed Investment Advisor Representative (IAR), as well as life, accident & health insurance licensed and is certified to address long-term care. Cornerstone Financial Partners is a privately held, independent financial planning firm.

Full Disclosure: This information does not constitute investment advice. This article is published and provided for informational purposes only. None of the information contained in the article constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. To the extent any of the information contained in this article may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person. Cornerstone Financial Partners does not provide legal or tax advice, and the contents of this message are not intended to constitute such advice. Please seek an appropriately licensed individual for legal or tax advice in relation to your individual situation.