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July 06, 2023 at 02:28 PM
While today’s fiduciary advisors do a much better job of delivering genuine financial planning to their clients compared to the transaction-focused stockbrokers and insurance agents of the past, there are still a number of important ways that the wealth management industry is falling short of its potential.
In fact, according to David Blanchett, the financial planning expert who heads up retirement research for PGIM DC solutions, financial advisors are in a position to significantly step up their game, thanks to the emergence of new planning technologies and an updated look at traditional planning methods — especially as they pertain to saving and spending in retirement.
Blanchett made this case during a recent appearance on the Economics Matters podcast, hosted by the Boston University-based economist Laurence Kotlikoff.
During the chat, Kotlikoff and Blanchett delved into the nuts and bolts of the modern financial planning process, contrasting what they referred to as economics-based planning (which allows for more nuanced perspectives about defining goals and achieving “successful” outcomes) versus traditional planning (which offers a more binary perspective of success and failure).
According to the duo, an overreliance on poorly contextualized Monte Carlo simulations is one key problem for the industry to address, and another is figuring out how to more clearly and effectively communicate about the interplay of complicated sources of risk.
There is a particular need to improve clients’ understanding of longevity and sequence risks, Kotlikoff and Blanchett argue, as well as the all-too-real risk of under-consumption.
Ultimately, the experts agree, best practices in the financial planning arena can and should evolve as new tools emerge and client expectations grow.
See the slideshow for a rundown of Blanchett’s main criticisms of the standard planning process. As Kotlikoff and Blanchett agree, fiduciary advisors owe it to their clients to strive to improve their planning approach.
Slideshow
