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

New methods that change global best practices in financial planning our 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 answer 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:

• A basic understanding of lifecycle finance and the financial planning questions it answers.
• Awareness that Markowitz's mean-variance optimization approach has been expanded to become holistic household balance sheet optimization, with the ability to simultaneously determine target asset allocations for taxable, tax-deferred, and tax-exempt account types.
• A basis understanding of the alpha-tracking error optimization framework for implementing a target asset asset allocation with a mix of mutual funds and ETFs.
• Understand at a high level, how lifecycle finance, net worth balance sheet optimization, and alpha-tracking error can work in unison to provide hyper-personalized, ongoing financial planning with integrated investment management.