Wanted: Advice to sort out IRA options

In the past 15 months, Mark Richards and Jim Dickey have tripled the revenues of their Albuquerque, N.M., financial planning company.

The two principals of Seniors Only Financial did not do so by winning a tech mogul’s account.

Instead, they took a course offered by Wealth Advisory Group Inc., a Clearwater, Fla., company that teaches how to best manage the assets in an individual retirement account.

Trademarked by Wealth Advisory Group as StretchIRA, the program gets the most out of tax rules that govern IRAs. Those rules became more favorable for investors Jan. 11 when the Internal Revenue Service eased restrictions on distributions (see article, next page).

Mr. Richards and Mr. Dickey are now experts on how to ensure that an IRA holder’s children inherit all the tax-sheltering benefits enjoyed by their parents.

And they now bring in clients by giving seminars themselves.

Under the new regulation, plan owners are permitted to make smaller withdrawals and preserve more of their wealth for heirs.

Heirs, in turn, can opt to take monthly payouts based on their own life expectancy rather than having to take a lump sum when they inherit.

During the past couple of years, a few pioneers realized that the stretch concept could prove a huge boon to financial planners.

“It’s where the money is,” because 33% to 50% of assets in many estates now reside in the IRA, says Robert E. Wayland, a partner in Wealth Advisory Group.

Indeed, statistics from Boston-based Cerulli Associates Inc. show that for the first time, IRA assets ($2.4 trillion) exceed defined-contribution plans ($2.3 trillion), which include 401(k)s, and defined-benefit plans ($2.2 trillion).

an aging population

How the funds get passed on is particularly important now, Mr. Wayland says, because for the first time since IRAs were introduced in the 1970s, people with those savings accounts are retiring in droves. By 2010, half of the U.S. population will be 65 years old or older.

Those IRA funds are up for grabs, and to the most-informed advisers go the spoils.

“It’s a ripe time to go after these assets,” agrees Charles DiVincenzo, director of advanced products for Hartford Life in Simsbury, Conn.

So financial services companies are rushing to fill the void.

“Whoever gets to the market first in terms of creating the opportunity will benefit from it,” says Theresa Ward, IRA product manager for OppenheimerFunds Inc. She says the New York company is beginning to educate advisers that buy its products. “You can create additional services around this kind of planning.”

Six financial planning companies got the jump in 1998 by pooling their resources to create the Wealth Advisory Group to study the succession-planning possibilities of IRAs.

For Rick MacDonald, president of U.S. Advisory Group in Boston, and Mr. Wayland, CEO of Provise Management Group Inc. in Clearwater, Fla., the opportunity was good enough that they bought out their partners.

Wealth Advisory Group became viable when Franklin Templeton Group of San Mateo, Calif., hired the company on a long-term consulting basis to help educate its advisers on the stretch-IRA concept.

Next, Intersecurities Inc., owned by Dutch insurer Aegon NV, sent 400 of its financial advisers for training. Linsco/Private Ledger Financial Services of Boston also enrolled hundreds of its independent advisers.

In all, Wealth Advisory Group has put more than 1,100 financial advisers – at $1,200 a pop – through its two-day certification program, which teaches the basic tenets of the StretchIRA program.

Steve Van Houten, an LPL adviser in Encinitas, Calif., says the seminar worked for him.

“You’re locking in your future big-time,” he says. “Generally the adviser doesn’t get to know the kids. This way the adviser is introduced to the kids early on.”

another success

Terry L. Garvin, sales director of Intersecurities in St. Petersburg, Fla., says he has “several agents,” including Mr. Dickey and Mr. Richards of Seniors Only, who have at least doubled their business by using the concept.

But he cautions that it may not be a panacea for all advisers.

“The drawback is that it’s a niche in that you need someone with hundreds of thousands of dollars” to really take advantage of the opportunities afforded by utilizing the stretch-IRA concept.

He says he finds that most advisers have five or 10 clients well suited for taking advantage of the opportunity. To get more benefit, he says, a company has to specialize in the way Seniors Only has.

Now Mr. MacDonald and Mr. Wayland are trying to further stretch their opportunities by teaming up with State Street Corp. in Boston to develop a custodial account geared to the special demands created by the trademarked StretchIRAs.

Mr. MacDonald says the evolution of the custodian accounts is key.

Essentially, the accounts have built-in intelligence so a red flag is raised for the customer before irrevocable bad distributions are made. Wealth Advisory Group expects to launch the account by spring.

Its next seminar is Feb. 22 and 23 in Sacramento, Calif.