1. The war ondisengagement: helpinginvestors avoid creatingthe
future they fearTim Noonan, Managing Director, Russell Investments
FOR FINANCIAL PROFESSIONAL USE ONLY. NOT FOR DISTRIBUTION TO
CURRENT OR POTENTAIL INVESTORS.
2. Important Information Please remember that all investments
carry some level of risk, including the potential Copyright Russell
Investments 2012. All rights reserved. This material is proprietary
loss of principal invested. They do not typically grow at an even
rate of return and may and may not be reproduced, transferred, or
distributed in any form without prior written experience negative
growth. As with any type of portfolio structuring, attempting to
permission from Russell Investments. reduce risk and increase
return could, at certain times, unintentionally reduce returns.
Russell Investment Group is a Washington, USA corporation, which
operates through Diversification and strategic asset allocation do
not assure profit or protect against loss subsidiaries worldwide,
including Russell Investments, and is a subsidiary of The in
declining markets. Northwestern Mutual Life Insurance Company. No
investment strategy can guarantee a profit or protect against a
loss. Russell Financial Services, Inc., member FINRA, part of
Russell Investments. These views are subject to change at any time
based upon market or other conditions First Used: September 2012
and are current as of the date at the top of the cover page.
RFS-12-9186 The information, analysis and opinions expressed herein
are for general information only. Nothing contained in these
materials is intended to constitute legal, tax, securities, or
investment advice, nor an opinion regarding the appropriateness of
an investment, nor a solicitation of any type. The general
information contained in this publication should not be acted upon
without obtaining specific legal, tax, and investment advice from a
licensed professional. Russell Investments does not sell bonds or
annuities.2 FINANCIAL PROFESSIONAL USE ONLY
3. Helping bring about change INSTITUTIONS ADVISORS
INVESTORSp.3 FINANCIAL PROFESSIONAL USE ONLY
4. The ambienceRaj Rajaratnam Bernie Madoff Allen Stanford
Rajat GuptaImage source: Peter Foley/ Bloomberg Image source: Jin
Lee/Bloomberg Image source: Joe Image source: Spencer Platt/
Skipper/Reuters Getty Images Standard Chartered Image source: Park
Ji-Hwan/AFP/Getty ImagesEmilio BotinImage source: Denis Doyle,
Bloomberg Barclays Image source: Spencer Platt/Getty Images p.4
FINANCIAL PROFESSIONAL USE ONLY
5. The ambienceThe customer is more cynical andmore distrusting
of corporateAmerica than ever before. That is why Ibelieve that
building a brand today ismore complex. Because people dohave more
choices. A brand mustbe a bridge of trust to theconsumerYou have to
recognizethat the success of Starbucks, or anycompany or brand, is
not anentitlement. It has to be earnedevery day. - Howard Schultz,
p.5 Starbucks Chairman Source: Context Magazine, Aug/Sep 2001
6. Helping advisors to help clients Russell received 1st place
for Demonstrates integrity and honesty in the Advisor Brandscape
survey in 2011 Source: Russell Investments, data as at January
2011.The ranking shown here does not pertain to specific mutual
funds referenced in this presentation. The ranking is based on
responses from a representative cross-section of 1,643 registered
financial advisors to an online survey conducted between April 15
and May 9, 2011. Of the nine Tier 1 loyalty drivers, Russell ranked
firstin this category. Other categories did not produce the same
results.Source: Cogent Research Advisor BrandscapeTM 2011:
Measuring the Impact of Brand and Loyalty on Revenue in the Advisor
Marketplace. Page 64. p.6 FINANCIAL PROFESSIONAL USE ONLY
7. What does rich mean today? c c Image courtesy of Tibetan
Nuns Project, www.tnp.org Book cover image courtesy of Wiley
Finance. This book is an individual achievement and not done in
conjunction with my role at Russell.p.7 FOR ADVISOR USE ONLY.
8. The human capital trade (economist version)Source: Russell
Investments 8 p.8 FINANCIAL PROFESSIONAL USE ONLY
9. The human capital trade (human beings version)p.9 FOR
ADVISOR USE ONLY.
10. Clients are hiding from risk. Households willingness to
take investment risk 8 11 9 5 5 Substantial risk for substantial
gain 16 10 17 19 22 Above average risk for above 31 average gain 37
41 Average risk for average gain 35 39 12 7 5 8 Below-average risk
for below- 6 average gain 42 31 30 24 30 Unwillingness to take risk
Tim Noonan than Tim Noonan All Younger 35 to 49 50 to 64 65 or
Older TitleHouseholds Title 35 Age of household survey respondent
Number of respondents 3,000 912 740 805 534Source: ICI Commitment
to Retirement Security, Investor Attitudes and Actions (p. 29),
data as at January 2012. Percentage of U.S. households by age
andownership status, Fall 2011. 10 p.10 FINANCIAL PROFESSIONAL USE
ONLY
11. Heres how. Combination of changes to be more financially
conservative Shifted investments to be more conservative Increased
regular savings amount 22 15 32 6 10 5 10 Delayed taking retirement
or increased expected retirement ageSource: ICI tabulation of GfK
OmniTel survey data (November and December 2010). Percentage of
households owning financial investments* that increased
theirregular saving, shifted their investments to be more
conservative, or increased their retirement age, Fall
2010.*Households owning financial investments include households
owning DC accounts, IRAs, or other financial assets (e.g., stocks,
bonds, mutual funds, variableannuities).Note: Among the 2,039
households owing financial investments, 1,186-or 58%-made at least
one of the actions indicated. See Appendix II for the exact wording
of thequestions. 11 p.11 FINANCIAL PROFESSIONAL USE ONLY
12. We return to a program previously interrupted 1 Consistent
2 Sustainable 3 Flexiblep.12 FINANCIAL PROFESSIONAL USE ONLY
13. No magic bulletCurrent offerings and challenges Flexibility
Sustainability Consistency Annuities immediate & variable
(subject to the claims paying ability of the issuing insurance
company) Bond Ladders Systematic Withdrawal (from traditional
portfolios/ dividend paying stocks)p.13 FINANCIAL PROFESSIONAL USE
ONLY
14. Expand the Frontier (with Adaptive Asset Allocation) 70%
60%Surplus (as % of initial wealth) Conditional Asset Adaptive
Allocation Asset Allocation 50% Traditional (Static) Static Asset
40% Asset Allocation Allocation 30% 20% 10% 0% 0% 2% 4% 6% 8%
Shortfall Risk (Probability Magnitude of Failure) 65 year-old
couple 10 year liquidity horizonThis hypothetical example is for
illustration only and is not intended to reflect the return of any
actual investment.Investments do not typically grow at an even rate
of return and may experience negative growth. 100% survivorship
income p.14 FINANCIAL PROFESSIONAL USE ONLY
15. New A, B, Cs Three Key Funded Ratio Zones 6,000,000
5,000,000 Highly-funded Funded Ratio > 150% 4,000,000 Wealth
Target Market Funded Ratio = 3,000,000 100% to 150% Under-funded
2,000,000 Funded Ratio < 100% 1,000,000 - Annual Retirement
Income ($)Source: Russell Investments. Hypothetical example is for
illustration only and is not intended to reflect the return of any
actual investment. p.15 FINANCIAL PROFESSIONAL USE ONLY
16. Spending policy Asset allocation Option value of
annuitization deferral advances Lessons Hyperbolic discountPersonal
asset liability model p.16 FINANCIAL PROFESSIONAL USE ONLY
17. 17 FINANCIAL PROFESSIONAL USE ONLY.
18. The battle of the hyperbolic discountSecret weapon: funded
ratio The funded ratio provides an objective measure of where your
client stands now Surplus Current Desired Investments Lifestyle
Spending* Funded Assets Ratio = Liabilities Pension Income*
Essential Spending* Social Security* Assets Liabilities (Spending
Goals) *Discounted present valuesp.18 FINANCIAL PROFESSIONAL USE
ONLY
19. Helping advisors realize which problems can be solvedThis
hypothetical example is for illustration only and is not intended
to reflect the return of any actual investment. 19p.19 FINANCIAL
PROFESSIONAL USE ONLY
20. Spending policy Asset allocation Option value of
annuitization deferral advances Lessons Hyperbolic discountPersonal
asset liability model p.20 FINANCIAL PROFESSIONAL USE ONLY
21. Cost of desired lifetime immediate annuity relative to
portfolio value Expected Ending Wealth ($) but theres a good
Annuity Purchase Cost or chance it never will You dont want the
portfolio to fall below the annuity cost . Time to have a
discussion with client 65 70 75 80 85 90 95 100 105 110 Age Annuity
Cost Portfolio Balance Portfolio Balance Portfolio Balance (good
markets) (mean return) (bad markets)IMPORTANT: This chart is for
illustrative purposes only. The projections or other information
generated by Russell regarding the likelihood of various investment
outcomesare hypothetical in nature, do not reflect actual
investment results and are not guarantees of future results.Source:
Russell Investments p.21 FINANCIAL PROFESSIONAL USE ONLY
22. Preserving the option to annuitize can help balance
retirees need for income and liquidity while managing longevity
risk Cost of Lifetime Immediate Annuity Relative to Portfolio Value
You dont want the portfolio to fall below the annuity cost $
Surplus Simulated annuity cost Shortfall 65 70 75 80 85 90 95 100
105 110 Age Annuity Cost Portfolio Balance (average
return)IMPORTANT: This chart is for illustrative purposes only. The
projections or other information generated by Russell regarding the
likelihood of various investmentoutcomes are hypothetical in
nature, do not reflect actual investment results and are not
guarantees of future results.Source: Russell Investments p.22
FINANCIAL PROFESSIONAL USE ONLY
23. Spending policy Asset allocation Option value of
annuitization deferral advances Lessons Hyperbolic discountPersonal
asset liability model p.23 FINANCIAL PROFESSIONAL USE ONLY
24. 24 p.24 FINANCIAL PROFESSIONAL USE ONLY
25. Helping advisors engage the disengaged Its not what you
say, its what they hear. Maslansky RELEVANT REALISTIC RESPONSIVE 1
2 3 Financial Planning Retirement Income Expertise Personal-
ization Strategic Tactical Lifestyle Tailoring vs. Adaptability
(Not Retirement) Goals-Based Planning NavigationMaslansky Research
conducted by Russell Investments in February 2011 25 p.25 FINANCIAL
PROFESSIONAL USE ONLY
26. Rule of thumb distribution rules are bad advice Consider
three investor scenarios Scenario 1 Scenario 2 Scenario 3 Age 67 67
80 Assets $1,250,000 $2,500,000 $620,000 Annual Spending* $50,000
$100,000 $50,000 Withdrawal Rate** 4.0% 4.0% 8.0% Estimated
Liability $1,063,863 $2,127,726 $529,855 Funded Ratio 117% 117%
117%*With a 2.5% annual cost of living adjustment.**Based on
current assets and first years spending.See the methodology section
at the end of the presentation for more information. p.26 FINANCIAL
PROFESSIONAL USE ONLY
27. 27 FINANCIAL PROFESSIONAL USE ONLY.
28. Wealth matters, but not as much as timeWill I ever be rich?
2011 2014 2016 2018 2020 OFF OFF ON ON ON TRACK TRACK TRACK TRACK
TRACK 66% 93% 114% 139% 168% Tim Noonans funded ratio, as of
October 2011.p.28 FINANCIAL PROFESSIONAL USE ONLY
29. The ambienceThe customer is more cynical andmore
distrusting of corporateAmerica than ever before. That is why
Ibelieve that building a brand today ismore complex. Because people
dohave more choices. A brand mustbe a bridge of trust to
theconsumerYou have to recognizethat the success of Starbucks, or
anycompany or brand, is not anentitlement. It has to be earnedevery
day. - Howard Schultz, p.29 Starbucks Chairman Source: Context
Magazine, Aug/Sep 2001
30. Methodology The value of a spending liability is calculated
by actuarially discounting future liabilities back to the present
using mortality data and an appropriate risk free rate (often based
on the Treasury yield curve). The Funded Ratio (FR) is the current
portfolio balance divided by the liability value. FRs of 100% mean
that the discounted liability exactly matches the current assets.
Less than 100% means that a plan is underfunded. Mortality data
comes from the Society of Actuaries, U.S. Annuitant 2000 Table.
Discount rate assumptions Year 1 5 10 20 30 50 Rate 0.14% 0.89%
1.98% 2.94% 3.20% 3.38%30 FINANCIAL PROFESSIONAL USE ONLY.
31. Russell, Russell Investments, Russell 1000, Russell 2000,
and Russell 3000are registered trademarks of the Frank Russell
Company. www.russell.com