Looking back: "effectiveness," outcomes, and the future
This newsletter is a milestone: our 100th edition of GuidePost. When we saw that number coming up, we were curious to look back at the first few issues to see what’s changed and what hasn’t. Apart from the inevitable evolution of graphics and hairstyles, we found that the retirement investing landscape looked very different nearly ten years ago. But it was reassuring to see that our fundamental concerns and goals were much the same then as they are today.
Back in 2005 we were all riding the crest of the “long boom.” In the investment industry the concept of assets under management reigned supreme as a measure of success. There was also a widespread concern that people weren’t saving enough. But the job of defining, measuring, and achieving success was ultimately like everything else in self-directed plans: the responsibility of the participant.
A contrarian view?
We took a different view. We didn’t care how many assets a plan, fund, or program managed to accumulate. From the beginning we were talking about effectiveness. It wasn’t exactly contrarian to be interested in participation, savings rate, and diversification. But it was unusual for a firm from the provider side to focus on them, and especially on how they could be changed. Fundamentally, we asked of any plan or innovation: “how is it helping people retire more comfortably?”
At the time the challenges included not just savings rates but a range of self-defeating investor behaviors. Our solution was to give up on education, throw out the glossy brochures and nifty cardstock ‘calculators,’ and replace them all with the modern innovations of automated advice and managed accounts.
Fast forward to today. Expectations are much higher: everyday retirement investors (especially the ones on TV) are asking “how much do I need,” “am I doing enough,” and “will my money last.” Yet at the same time, their fundamental expectations are also lower. As the Baby Boom contemplates decades-long retirement with memory of the Great Crash still fresh, simply surviving will be a challenge for many. And still, some people aren’t saving at all.
Meanwhile, we remain focused on effectiveness. These days we call it “outcomes.” And we define it in the same terms our clients do: improving their lifetime income in retirement, with the goal of replacing enough of their working-age income to live comfortably.
Just ask the market
How do we know we’re on the right track? By looking at our market, and considering what people actually want. Back then it was “tell me what to do with my 401(k).” We delivered. Today the questions are more diverse and complex, like those above. A world of retirement income products, solutions, and strategies and a torrent of consumer media content have grown up to address them.
But just as online advice was technically quite difficult a decade or more ago, providing a predictable, optimal income is even more so today. The first part is easy: trends like the strong demand for “easy-to-understand basic income annuities” show that investors will gladly trade potentially higher returns for tangibly greater security. The second part is, too: just follow Modern Portfolio Theory. The tricky part is doing both at the same time.
The task of optimizing total lifetime income while keeping annual income steady, and minimizing the risk of running out, makes many so-called income solutions look like those old paper calculators. We’ve shown it can be done. Looking back, we’re reminded that we’ve always been out in front.
Looking forward, we don't know how we'll define "effectiveness" in ten years' time. We do know it will mean doing the most good for investors and retirees with the best tools we can create. And we suspect we'll still be ahead of our time.