Morningstar Advisor - Summer 2008 - 9

Inbox how did you model that relative to inflation? Jonathan T. Guyton, Cornerstone Wealth Advisors, Edina, MN Author James Xiong responds: This article only considers a nominal income stream. However, we have done the analysis, and the new income frontier is qualitatively the same for a real income or inflation-adjusted income stream. The real median sustainable income will be less than the nominal median sustainable income. We assume a constant forward-looking inflation rate of 2.5%. it as necessary to draw distinctions between, say, my work as CIO and Peggy Ruhlin’s work as our managing partner. Each of our functions is critical to the firm’s success. So we take the same salaries, which are based on what we know to be fair and common in the wealth-management industry for a firm of our size. We have agreed that if one of us were to work in some reduced capacity relative to the others then we would adjust compensation, but that has not yet occurred. Profit distributions are based on our proportionate ownership, of course, and to this point have been equal among the four of us. Annuities for Retirement Income You Are What You Invest E-mail your feedback, ideas, and viewpoints to magazine_editor@morningstar.com. Or write us at: Morningstar Advisor Magazine, 225 W. Wacker Dr., Chicago IL 60606. Retirement Income Efficient Frontier After reading “Adding the Income Dimension,” I can only conclude that Morningstar has an internal policy of giving cover to the variable annuity industry. The article assumes a level income during retirement, thus conveniently ignoring inflation. Any responsible financial advisor should be devising an inflation-adjusted income for the retiree. I don’t believe I have seen a variable annuity with an inflation-adjusted guaranteed minimum withdrawal benefit. Because a variable annuity can’t provide an inflation-adjusted minimum withdrawal benefit, the authors assume a flat retirement income, which seems to only benefit the variable annuity option. Ron Pearson, Beach Financial Advisory Service, Virginia Beach, VA Regarding Mr. Farrell’s comments (On Topic), the problem today is not fees or expenses; it’s that people are not saving enough for retirement and they’re blaming insurance and financial institutions for their inability to retire as expected. Instead of advisors standing firm and telling people what they need to hear, they’re telling clients “It’s not your fault; it’s the fees.” Give me a break. Every product has its place and can’t fit into every situation. That’s where advisors come into play. Chad Courtois, Advantaged Assets, New Iberia, LA Don Phillips’ column (“Back to the Garden”) was great! In the 30 years I have been an advisor, I’ve grown cynical as I’ve seen an evolution from simplicity to complication, magnified by enormous greed on part of the industry. It used to be very simple. You used Morningstar’s sort command, did a little more research, and you picked a fund. Now, you have to worry about the integrity of the mutual fund company first and then become a very religious person next and pray a lot. Robert Cohen, The Cohen Benefits Group, Atlanta, GA Advisor Profile Richard Pzena Great article (“Staying Out of the Silos”). The advisor profiled, Dan Roe, says, “We’re all going to take credit for the client. We simply agree, that as a point of our partnership, we’re all on equal terms.” This raises the question of what their compensation structure looks like, which, as I experience issues in our firm, is one of the hurdles to a team-based approach. Landon Vick, Cravens & Company Advisors, Knoxville, TN Thanks for writing “Adding the Income Dimension.” I’m wondering, however, if the median sustainable income in the article’s scenarios is real or nominal. If it is real, Dan Roe responds: We decided that if all of us are actively participating in the firm, and as part of the client service team, then we should all be compensated equally. We did not view I thoroughly enjoy your magazine and its insights, so I was surprised to read “The Last Holdout,” the interview with John Hancock Classic Value Fund manager Richard Pzena. Mr. Pzena states that financials are businesses “that are currently impaired, and they’re impaired by industry conditions more so than any company-specific situation.” In my opinion, the management of many financial institutions failed in their risk management and abandoned prudent lending standards. I think an insightful interview would not have given Mr. Pzena a walk on this issue. Suzanne Rague, Portfolios Northwest, Beaverton, OR MorningstarAdvisor.com 9

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Morningstar Advisor - Summer 2008

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