Almost since the beginning, the issue has been one largely centered around money.

Most prospective financial planning or wealth management clients want to know, "what do I get for what I pay?" It's a normal question the answer to which has been anything but easy.  I believe and hold fast to the premise that planning makes everything better, no matter what endeavor you're about to embark on. In my field, the "better" has largely been "intrinsic" factors, better decision making, few miscues, less emotional reaction and knee-jerk moves and a life designed on purpose. I still hold those factors as critically important. As Dwight Eisenhower said; "the plan is nothing; planning is everything." 

But now, David Blanchett, CFA, CFP®, Head of Retirement Research at Morningstar Investment Management and Paul Kaplan, Ph.D., CFA, Director of Research for Morningstar Canada have put dollars on the table. In their recent paper, Alpha, Beta and Now...Gamma have attempted to show the true dollar value of planning it, as opposed to chancing it. 

The authors looked at five factors that are typical in a client/advisor engagement;

  • Total Wealth Asset Allocation
  • Dynamic Withdrawal Strategy
  • Annuity Allocation
  • Asset Allocation and Withdrawal Sourcing
  • Liability-Relative Optimization
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What they've concluded is that throughout retirement, the estimated "return" as a result of these five factors is about 1.82% per year additional return. That's a lot of money. 

So, there it is, the "intrinsic" and cash.  For the record, Blanchett and Kaplan aren't the first to put a dollar value on it. Dalbar has reminded us each year that the return of the typical investor lags the return on the market by not just a little, but by a lot.

As the debate on Entitlement Reform continues, can we finally admit that linking Social Security increases via the CPI, "Linked-CPI" or "CPI-e" isn't the heart of the matter. You see when you don't ever open the "retirement" box until retirement, it's not hard to imagine your surprise at what you find. 

If Blanchett and Kaplan are right, what we need to do is to find out how we take steps to increase the likelihood that the typical American won't give away 1.82% a year throughout retirement because they didn't plan for it in advance. 

I have a new tax loop-hole. Let's make paying a fiduciary for advice a tax credit or itemized deduction.  The fewer people we have struggling and relying on the entitlement system the better off we'll be and the cheaper it will be in the long-run for the government.