Congratulations to Michael Finke, Ph.D., CFP®, and Thomas Langdon, J.D., LL.M., CFP®, CFA, winners of the second annual Journal of Financial Planning Montgomery-Warschauer Award. Their paper, “The Impact of the Broker-Dealer Fiduciary Standard on Financial Advice,” published in the July 2012 issue of the Journal, examined whether strict fiduciary standards for registered representatives limit broker-dealers’ ability to recommend commission investments and serve middle-market clients. To find out, the authors compared adviser practices in states with strict fiduciary standards to those in non-fiduciary states.
This year’s winners were among authors who submitted manuscripts in 2012. They were nominated by the Journal’s editorial staff and selected with the input of Practitioner Editor Michael Kitces, Academic Editor John Grable, and our Editorial Advisory Board.
Finke and Langdon will be recognized at the second general session at FPA Experience 2013 this October in Orlando, Florida. Subject to their availability, they will be offered an opportunity to present their research at the conference, with airfare and registration costs paid by the Journal. FPA also will offer to award a $1,000 scholarship or donation to the institution or charitable organization of their choice. FPA and the Journal donated $1,000 to the Foundation for Financial Planning on behalf of Wade D. Pfau, Ph.D., CFA, after his paper, “Safe Savings Rates: A New Approach to Retirement Planning over the Life Cycle,” won the inaugural Montgomery-Warschauer Award for 2011.
The long-standing tradition of the Journal of Financial Planning to provide groundbreaking research for practitioner use in real-life planning with clients began three decades ago with the foresight of Henry Montgomery, Tom Warschauer, and others. The late Henry Montgomery, a CFP® certificant and decorated WWII Army service member, is largely credited with creation of what is now known as the Journal of Financial Planning. Tom Warschauer, Ph.D., CFP®, professor of finance at San Diego State University, served as the Journal’s first academic editor and continues to champion the effort to align scholarly research and practitioner needs to foster the greatest collaboration of talents in the field.
Incidentally, Finke and Pfau—this year’s winner and last year’s winner, respectively—along with David M. Blanchett, CFP®, CFA, co-wrote a contribution published in this issue of the Journal titled “The
4 Percent Rule Is Not Safe in a Low-Yield World.” This paper has been anticipated with great excitement since word of its impending publication leaked out to the trade and consumer media. However, this is the public’s first opportunity to read the finished, peer-reviewed version of the article.
The paper observes that the safety of a 4 percent initial withdrawal strategy depends on asset return assumptions. Using historical averages to guide simulations for failure rates for retirees spending an inflation-adjusted 4 percent of retirement date assets over 30 years results in an estimated failure rate of about 6 percent. This modest projected failure rate rises sharply if real returns decline.
The question lingers as to which is an anomaly, today’s low interest rates or the historical success of the 4 percent rule. Stay tuned.