Going Where the Research Leads - Integrated Retirement Advisors

Going Where the Research Leads


By Nahum Daniels, CFP®, RICP®


As a client-facing financial advisor (FA), I view myself as an intermediary whose job it is to communicate in the form of sound, actionable advice the latest findings in academic research and retirement theory unearthed at the institutes and centers of retirement studies. As for my pedigree, I’m a product of The American College of Financial Planning located in Bryn Mar, PA, where I earned its Retirement Income Certified Professional (RICP) designation. Amidst the hundreds of thousands of FA’s in the USA today, there are only 6,000 graduates of this relatively new program, with another 4,000 or so currently enrolled.

I can humbly report that, developed and taught by some of America’s most respected retirement experts, the RICP curriculum is non-trivial. As a CFP practitioner who has specialized in retirement planning for going on two decades, I felt I needed to earn and maintain the designation if only to make sure I wasn’t missing anything. I certainly owed that to my clients and any members of the public who could fall within hearing distance or reading range.

In August 2015, Wade Pfau, PhD/CFA, professor of retirement income in the PhD program at The American College, published the results of a quantitative analysis he painstakingly performed comparing immediate annuities to bond funds in retiree nest eggs. It was entitled: Why Bond Funds Don’t Belong in Retirement Portfolios. Pfau’s findings challenge one of Wall Street’s most fundamental dicta: that bonds provide ballast to a balanced portfolio and should therefore comprise 40% to 60% of a retirement portfolio. Instead, Pfau announced that a classic insurance product, the immediate annuity, is a more efficient, higher yielding and far more reliable alternative. Therefore, he concluded, the retirement nest egg should be invested in a combination of income annuities and stocks!

Building on those findings in a paper presented at the 2018 Actuarial Research Conference, Michael Finke PhD, Dean of The American College, presented the results of a study he conducted with David Blanchett PhD, Head of Retirement Research at Morningstar Investment Management, that calculated the increased stock exposure rendered “prudent” in a retirement portfolio thanks to the guaranteed income provided by insurance in the form of an immediate annuity.

Preconceived investment notions were further challenged in January 2018 when Roger Ibbotson PhD, Yale Professor Emeritus of Finance and the world’s leading authority on asset class performance from 1926 to present, announced the results of a study he conducted on the Fixed Index Annuity (FIA), a relatively new insurance product that helps preserve retirement assets from market losses while linking them to those same markets to capture a share of their upside potential. The FIA, Ibbotson reported, could out-perform bonds, especially in rising-rate environments like the one we’re in, and should be considered, he recommended, as an alternative for bonds in de-risking retirement portfolios.

If you’ve read my book, you know I recommend the FIA serve as the anchor of your nest egg’s “stable core” and that balancing a retirement portfolio today means combining insurance and securities—and not just stocks and bonds—in suitable proportion. Now you know the identity of some of my intellectual antecedents and why I’m proud to bring their message to you. I urge you to heed it.