Paula Hogan Optimizes Life-Cycle; Michael Finke Retires 4% Rule: May Research—Slideshow

Research magazine's May issue looks at life-cycle investing, the 4% rule on retirement income and how to be a leader in your own career and life.

The cover story, "Investing for a Lifetime," focuses on Milwaukee financial advisor Paula Hogan, whose innovative blending of life-cycle theory and life planning provides a promising path for the future of financial advice.

The latest Finke on Finance feature asks: "Is the 4% Rule Folly?" The longstanding staple of retirement income advice, that one should plan on withdrawing 4% of assets each year, requires revision in light of new research, argues Prof. Michael Finke.

"The Advisor as Inspirer" examines the principles of sound leadership and how advisors can incorporate them.

To preview these articles and more, click through the following slides.

Investing for a Lifetime

This month's cover story, by Jane Wollman Rusoff, contemplates Paula Hogan's incorporation of life-cycle theory and life planning into her advisory practice. Excerpt:

A decade ago, Paula H. Hogan had one of those incredible a-ha moments—and her financial advisory practice has never been the same. This was no fleeting “I coulda had a V8!” epiphany. It was profound, with deep implications for the advisor’s business—perhaps even for the entire financial services industry.

That insight hit when the FA, founder and managing member of the Milwaukee-based firm bearing her name, read a couple of eye-opening Financial Analysts Journal articles written by economists: one story by Zvi Bodie, the other by Robert Merton. Both were about lifecycle investing, a school of thought that seeks to optimize income and spending, matching investment risk to goals.

Read the full article.

Is the 4% Rule Folly?

Michael Finke scrutinizes a longtime fixture of retirement planning wisdom. Excerpt:

Somewhere along the line, the shortfall methodology that underlies the 4% rule was anointed the gold standard for judging withdrawal rate strategies. What began as a good-faith exercise to point out the risks from withdrawing too much each year from a retirement portfolio has gained a mythic and potentially unhelpful place among advisors. It’s time to dust off the 4% rule and see whether it deserves its place on the shelf of best practices.

First a mea culpa. My co-authors David Blanchett, Wade Pfau and I recently pointed out that low bond yields may nuke the 4% rule. We used the same shortfall methodology, but we ran a Monte Carlo analysis since we don’t have historical bond rates as low as the current real bond rates. So I’ve used the shortfall methodology in my own research.

Read the full article.

The Advisor as Inspirer

Ellen Uzelac searches for leadership lessons of notable relevance to financial advisors. Excerpt:

What makes a good leader? It’s a tough question with many answers. As Kathleen Brush, corporate turnaround executive and author of The Power of One, says: “The biggest challenge to being an effective leader is understanding that employees aren’t the problem. If there are problems in your organization, it’s not the employees; it’s you.”

When Stephanie Bogan, senior vice president of client experience and training at United Capital, owned a financial services consulting firm, she would frequently experience what she now calls “control seizures.” Was she a nitpicker? Yes. A micromanager? Absolutely.

Read the full article.

Will Indexing Kill the Market?

In Investment Sense, a new column, Marshall Jaffe assesses the consequences of a popular trend. Excerpt:

One of the fundamental laws of investing is that when everyone agrees on something there is something important they are not seeing. There are few if any observers today who don’t hold that indexing is as perfect an investment strategy as has ever existed: simple, cheap, effective, and with little to no downside (other than the market itself). Try Googling “risks of indexing” or any other permutation of the phrase. The results (or lack of them) are a powerful testimonial of how one-sided is our perception of indexing.

Read the full article.

Fighting for His Clients

The magazine profiles Kansas City, Mo.-based Christopher Walker, relationship-oriented financial advisor and martial arts enthusiast. Excerpt:

Christopher L. Walker started out 19 years ago as a transactional wirehouse broker making a whopping 400 daily dials nationwide. Yet inside this conscientious cold-caller was a consultative, relationship-oriented financial advisor yearning to break free. Plenty successful as a broker, Walker was, however, equally unhappy being a broker.

That’s why a year later he jumped off the transactional treadmill to become a relationship-based, fee-based advisor. His transition from broker to advisor is illustrative of the challenges that many FAs face—his story perhaps helpful to others who are contemplating such a move.

Read the full article.

See the contents of the May issue.

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