The top conversations on APViewpoint last week were started by thought leaders Joe Tomlinson, Larry Swedroe and Dan Solin. They generated thoughtful discussion with wide ranging opinions on: how variable withdrawals improve retirement outcomes; whether high-dividend strategies add value; and the future of the advisory business.
Joe Tomlinson’s How Variable Withdrawals Improve Retirement Outcomes received 20 comments from thought leaders commending him for his analysis of variable withdrawals and equity glide paths. Members widely agreed with his conclusion that retirement planning research should have a greater focus on variable withdrawal strategies and their asset allocation implications, and they contended that “fixed withdrawals are a simplifying assumption for research models but not a rational income strategy in real life.” They said that variable withdrawal strategies consider “more realistic retirement spending patterns and how the marginal utility of additional spending likely decreases as one ages,” and they can help advisors make key planning recommendations. However, members challenged Tomlinson’s argument that equity glide paths in retirement are relatively unimportant, arguing that “risk aversion may increase with age and that would imply a decreasing glide path.” They also argued that, because it is difficult to estimate future equity premium levels and account for uncertainties, it may not be reasonable to use these models to “identify an optimal (or even near-optimal) asset allocation for an individual household.” However, advisors agreed, analyzing variable withdrawals and asset allocation strategies can provide valuable insights during the retirement planning process.
Larry Swedroe’s Do High-Dividend Strategies Add Value? provoked 23 comments. Advisors discussed Swedroe’s recent article which concluded that “there isn’t much evidence that high-dividend actively managed funds either added or subtracted value.” Some challenged Swedroe’s results, and cited recent studies that found “dividend paying stocks exhibited lower volatility” on a global basis. However, most members agreed that “once you adjust for the well-known factors, the returns on dividend payers is indistinguishable from zero,” and that high-dividend strategies are “an expensive and inefficient way to obtain a value tilt.” Advisors also discussed the downfalls of using dividend strategies to generate a retirement paycheck. They warned that dividends are a very poor tax strategy, and cautioned investors relying on dividend cash flows that companies have significantly cut dividends by more than 25% during market lows.
Dan Solin’s The Future of the Advisory Business received 10 comments from members discussing how robo-advisors are disrupting the financial planning industry. Advisors discussed strategies they are using to communicate their value to clients as they come under increased pressure to justify their fees. Members contended that clients cite concerns about fees when they do not understand the value their financial advisor is providing. To address this, advisors have focused on increasing communication to ensure that clients understand the services they provide. Members agreed that “investment management is just a small portion of the value good competent advisors provide,” yet portfolio performance is a point of focus for clients. Advisors shared techniques they have used to emphasize the importance of retirement planning when communicating with clients, and have differentiated themselves from robo-advisors by explaining that they can help clients determine which investment strategies (i.e. a bucket strategy, a combination of SPIAs and/or DIAs, a reverse mortgage line of credit, etc.) are most appropriate for the client’s unique circumstances.
