Duke University Professor Attacks Advisor Fees, Says A Calculator Could Plan Retirement Better And More Cheaply
- Created: Thursday, 01 September 2011 07:34
Dan Ariely teaches "behavioral economics," so his criticisms of standard retirement planning are purely psychological.
He wants to know why planners don't spend more time working with clients to make the tough decisions in terms of their spending.
But he also seems to think the typical retirement portfolio will need to replace 135% of a family's peak income in order to meet clients' planning goals.
Since advisors aren't guiding people toward that kind of portfolio, he then attacks the fee-for-assets compensation model.
"Why pay someone to create a portfolio that's 60% too low in its estimation?" he asked.
There's no discussion of how advisors are supposed to get clients with less than high net worth to that level, which seems strange to say the least.
Ariely does create an opportunity here for advisors to think hard about their value proposition. We know you're a lot more than a calculator and that your planning benchmarks are reality-tested.
But do your clients and prospects know what they're really getting for that 1% a year they pay in fees?
And do they know what goes into your planning assumptions, like why 75% of income replacement makes more sense -- for the typical advisory client -- than some other number?