PFP2510. Morningstar: The Future of Lifetime Financial Advice; Morningstar: Latest Research

New methods that change global best practices in financial planning are rare. This session focuses on a new breakthrough model for combining two separate Nobel-prize-winning frameworks with the promise to change the future of financial planning and investment management.

Much of “investment” financial advising is based on Modern Portfolio Theory’s mean-variance optimization (the efficient frontier), which resulted in a Nobel Prize for Harry Markowitz.

Almost all economists agree the best framework for answering critical financial planning questions is ‘lifecycle finance.’ Nobel prize winners that worked on lifecycle finance include Milton Friedman, Franco Modigliani, Paul Samuelson, Robert Merton, and others.

These two Nobel-prize-winning ideas, one for providing advice across time and one for providing advice across assets at a point in time, have remained separate for almost 75 years.

In a 2024 book published by the CFA Institute Research Foundation, Lifetime Financial Advice, Morningstar authors Thomas Idzorek and Paul Kaplan create a new type of model for lifetime financial advice that combines lifecycle finance with Modern Portfolio Theory.

The book is free to all: https://rpc.cfainstitute.org/-/media/documents/article/rf-brief/lifetime-financial-advice.pdf

Learning Objectives:

• Recognize lifecycle finance and the financial planning questions it answers.
• Recognize that Markowitz's mean-variance optimization approach has been expanded to become holistic household balance sheet optimization.
• Recognize the alpha-tracking error optimization framework for implementing a target asset asset allocation with a mix of mutual funds and ETFs.
• Identify how lifecycle finance, net worth balance sheet optimization, and alpha-tracking error optimization can work in unison.