CHICAGO -- Against the backdrop of longer lifespans, persistent low interest rates and insufficient funds for their golden years, clients and their advisors are looking for ways to generate income during retirement.

At a standing-room-only session on overcoming retirement-investing challenges at Envestnet's Advisor Summit here, three investment managers described the tools they offer to help advisors create income for their clients.

"The world is shifting," said Robert Bernstein, the moderator and a senior managing partner for Envestnet Retirement Solutions. "If you want a sense of where the industry is heading, it is clearly here," he said, referring to the companies represented on the panel.

Panelists included Ross Znavor, a director for BlackRock, who offered insights on the firm's new CoRI Indexes; Rod Greenshields, a consulting director for Russell Investments, who introduced the concept of assets versus liabilities as a way to help reframe retirement conversations; and Brendan Murray, a senior investment director in the Global Asset Allocation Group at Putnam Investments, who discussed the firm's absolute return offerings.

Here's a rundown of the ideas they presented.


In creating its CoRI products, BlackRock has developed an index based on the median purchase price of a single premium immediate annuity.

The process involves two steps, Znavor said. The first, he explained, is to model cash flows in a manner similar to an insurance company's model for someone purchasing an annuity. Next, a bond portfolio is built to match those flows.

Unlike a bond ladder, which staggers the bonds' maturity dates, this new strategy applies the principles of an institutional approach known as liability-driven investing, Znavor said. In this case, a bond portfolio is built to produce yields that match the future cash flows the investor will need. The CoRI bond fund holds only Treasuries, Treasury STRIPS and high-quality investment grade credit, according to Znavor. 

While other strategies attempt to manage asset volatility, Znavor said, this one provides a structure to measure and manage portfolios based on volatility and income. "This is the first time you can measure and build portfolios exclusively based on income and managing income volatility."

Of course, this doesn't always work, he said, noting that the strategy is meant for investors ages 55 to 75. For younger people, he said, derivatives would be required to implement the strategy, introducing third-party risk. For clients older than 75, annuities may actually provide better value.


Russell's Greenshields presented on the Russell Retirement Lifestyle Solution, a planning tool available only through financial advisors that is meant to help reframe clients' thinking on retirement and income needs.

The goal is essentially to pensionize the clients' retirement portfolio by examining assets and expenses. The "funded ratio" compares the client's projected assets with their projected expenses, and can help advisors determine an allocation strategy, Greenshields said. It can also help start the conversation about spending and staying on track.

Ultimately, Greenshields said, it's important to "base investors' asset allocation on their capacity to experience investment volatility" and to adapt the portfolio based on how much they can afford to lose.

If clients have a mere 5% surplus beyond their funded level, they can't afford to take on as much risk as clients with a much greater surplus, Greenshields explained.

According to Russell marketing materials, this adaptive investing approach is "implemented through Russell Model Strategies, a series of globally diversified portfolios with a range of asset allocations."

Each client's situation determines the appropriate model -- conservative, moderate or balanced -- Greenshields said.


Putnam's Murray urged advisors to consider an alternative approach to portfolio construction, focusing more attention on the sequence-of-returns risk after retirement.

Second only to the need for proper asset accumulation, the sequence of returns immediately before and after a client's retirement date is a crucial factor in the success or failure of a retirement plan, Murray said.

To help address this risk, Putnam has four absolute return portfolios that are designed to seek a specific level of return with a specific level of volatility, Murray said. The portfolios target risk and return rates of 1%, 3%, 5% and 7% above cash, annualized over market cycles (around three years).

"We're trying to get a Sharpe ratio of one," Murray said.

Portfolio managers are not restricted by asset class, he said: "The key is to have a wide-open investment universe and access to as many strategies as possible to meet that risk-return profile."

In theory, these "volatility-dampening, efficiency-enhancing" products could help "smooth the ride" for retirees, Murray said. "You still want to grow your money, but you don't want to be exposed to that much equity risk."

To evaluate this type of product, Murray said, advisors should ask: What's the objective of the fund and how effectively have the managers achieved it? Advisors should look at return versus the target and volatility versus the target, he said -- and based on that, they can judge the fund's success.

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