While it seems unlikely that digital solutions or the internet will ever fully supplement human advisors, the ecosystem of financial advice and information is likely to continue to evolve and increasingly be online in the future.
In this piece, I demonstrate that small-cap equities become increasingly attractive for investors with longer investment horizons.
This article explores the benefit of the optimal allocations to RILA crediting strategies using expected returns and a model that accounts for the unique (non-normal) return distributions of RILAs.
Beware of investing in cash with a plan to extend maturities when the yield curve is no longer inverted. My research shows that this decision is historically difficult to time.
While fixed COLAs with SPIAs may seem like an attractive way to address inflation in retirement, they actually increase inflation risk, not reduce it.
I explore the efficacy of traditional RILAs and those that offer dual-directional crediting. I use a total-portfolio context with a portfolio-optimization approach based on utility theory.
The benefits of RILAs vary significantly by design, and buffer RILAs have historically been a more attractive addition to a portfolio than floor RILAs.
The next time someone suggests that nonnormal returns are a problem with Monte Carlo, tell them that their concern is a nonissue.
While the equity allocation of portfolios should increase for longer investment horizons, the adjustment should be less than implied by the historical evidence, and it should be based on each investor’s unique situation and preferences.
The empirical evidence supports Seigel’s general assertion that stocks beat inflation in the long run. But the inflation-hedging benefits of stocks aren’t perfect.
Investors who base their beliefs about the distribution of possible stock returns on historical data from their home country underestimate the probability of experiencing a significant crash.
Here’s how we can improve financial planning projections to result in better forecasts, advice and guidance to households.
More balanced risk strategies in PLIBs are likely to be optimal (e.g., 40-50% equities), although the ability to personalize the risk level is important based on the household situation and preferences.
I explore some of the factors driving the superiority of PLIBs, in particular lapsation, mortality experience differences, accessing the equity risk premium, and the marginal role of annuities as part of a retirement strategy.
This article explores the efficacy of PLIBs against a retirement income strategy that does not include an annuity, as well as strategies which allocate to either a SPIA, a DIA, or a GLWB. I used a utility framework for this analysis.
This piece introduces the protected lifetime income benefit (PLIB) to describe an emerging category of longevity-protected solutions.
Insurance protects against losses – fires, floods or a wrecked car. Because of the life-altering consequences of such as loss, clients rarely question the cost of the insurance. When viewed through an analogous framework, the cost of lifetime-income insurance, such as a GLWB, is fairly priced.
The historical evidence strongly suggests that equity returns are likely to be lower in a lower bond yield environment and this needs to be incorporated into financial projections and investor decision making.
This article explores the benefits of annuities with lower explicit fees, a category I dubbed as “annuities Lite” in a previous article that focused on GLWBs.
While the lower fees associated with GLWB Lite products make them seem more attractive, the expected income is significantly lower than other annuities.
The benefits associated with exclusion-ratio taxation can be significant and should be considered when selecting the appropriate GLWB annuity for a non-qualified account.
If you use historical interest rates to analyze options-based annuities, you will mislead clients as to the benefits of those products.
Advisors have a lot of questions about annuities. With today’s expanding marketplace of commission-free options for fiduciary advisors, accurate annuity information is more important than ever. Join this session with leading academics to ask your questions about annuity products and strategies.
Attendees who complete all 5 sessions will receive a very special, soft “Annui-tee” to congratulate them for completion.
The predominant approach to classifying securities geographically is based on domicile, the legal home of a company. But that approach is losing its relevance. Investors should consider foreign revenue to understand the international risks of investments and portfolios.
I provide guidance on the “equity-like” risk of buffer and floor strategies when included in a diversified portfolio, assuming an S&P 500 underlying index.
Longevity and sequence of returns create very real risks for today’s retirees. Fortunately, fiduciary advisors have a robust and growing selection of no-load annuity solutions to explore that can protect client plans from these risks.
Join this session to learn how to assess risk in clients’ portfolios and take your annuity understanding to the next level by learning how to compare annuities by type and use.
There’s no one-size-fits-all approach when it comes to annuities, but fiduciary advisors have learned that no-load solutions can be a powerful tool in their planning toolbox.
Join this session to learn how and when to use commission-free annuities based on clients’ specific needs, and how to implement annuities strategically in your fiduciary practice (e.g. how to collect a fee for annuity allocations).
While your clients can’t buy happiness, you can help bring them peace of mind through a Commission-Free annuity that protects their retirement plan. According to recent academic research, buying an annuity can increase retirees’ satisfaction and give them confidence to stick to their plan.
Join this session – the second in a 5-part series – to understand how annuities create a license to spend in retirement and help insure the success of a financial plan.
I show how allocating to options-based strategies can improve the efficiency of a portfolio.
I am going to more dig into buffer-and-floor strategies, with a particular focus on the underlying options-pricing dynamics.
I will explore three approaches to options-based strategies: DIY, an ETF or a RILA.
Given the increase in interest of registered index-linked annuities (RILAs) and consistent growth in sales, advisors should understand the basics of the product and how it works.
According to leading economists and academics, annuities can generate retirement income more efficiently than bonds for today’s retirees. In addition, they can ease the impact of a market downturn on a portfolio and create the opportunity for heavier allocations to equities for discretionary spending or legacy designations. Join this session – the first in a 5-part series – to understand how and why advisors are using commission-free annuities to strengthen their clients’ retirement plans and grow their firms.
This session is the first of a new five-part annuity education series, featuring leading academics Wade Pfau, Ph.D., CFA, RICP® Professor and RICP®️, Michael Finke, Ph.D., Frank M. Engle Distinguished Chair in Economic Security, David Blanchett, PhD, CFA, CFP®, ChFC®, CLU®, and DPL Founder and CEO, David Lau.
Relying on only historical U.S. returns creates an unrealistic picture of retirement outcomes. Our analysis shows that U.S. data are an anomaly among the broader global universe, and that our low-yield environment forebodes lower-than-average equity returns.
Today’s low bond yields and high equity valuations have led many to jettison the traditional 4% initial safe-withdrawal rate assumption. But I will show that the optimal “safe” withdrawal rate depends considerably on the retiree.
There is no easy answer for income investors whose expectations and behaviors need to be adjusted accordingly.
Managed accounts are a solution to financial security, not a “threat.”
We compare fixed annuities to other safe investments, such as CDs and Treasury securities, to better understand whether they provide attractive risk-adjusted performance and are a reasonable alternative for risk-averse investors.
Variable annuities were created to give retirees access to lifetime income with the potential for growth. Today’s products offer a range of features such as liquidity, investment risk hedging, access to a risk premium, tax deferral, and longevity protection. This panel address the tradeoff of these product features and when they provide the greatest value to retirees. The best variable annuities offer reasonable-cost options that provide income, investment flexibility and downside protection when clients need them most. CFP and IWI CE credits pending.
This article explores the trade-offs associated with the decision to delay an annuity purchase – in particular the interaction between changes in bond yields and assumed portfolio rates of return, and the impact of mortality improvement.
Market crashes, such as we experienced in March at the onset of the pandemic, drive assets to the safe haven of government bonds. But our research shows this flight to safety mindset did not translate to an increase in demand for annuities.
While the “annuity puzzle” is well-documented in the academic literature, there is no “mutual fund puzzle.”
From a performance perspective, I give robos an “A” for being average, and hope that future research can make more meaningful statements as to how robos truly impact investor outcomes.
The fact only roughly 1 in 20 annuity quotes include a COLA suggests that advisors are not considering, and retirees are not being provided with, information that is essential for determining the optimal annuity benefit payment structure.
I recently traded emails with someone who is provably smarter than me. He was very interested in buying a SPIA with payments linked to inflation, which is also called a real annuity. Real annuities are often depicted as perfect for a retiree. But after obtaining some quotes and running an analysis, I concluded the idea was “nuts.”
DALBAR’s report is commonly cited as “proof” that mutual fund investors have historically made poor market-timing decisions. While DALBAR does not publicly disclose its approach, in this article I use a transparent and industry-accepted methodology, based on publicly available data, to demonstrate that investors’ returns have not been nearly as bad as DALBAR claims.
