How can you check the Completeness of your Retirement Policy Statement℠?

In 2014, RIIA® introduced the concept of the Retirement Policy Statement℠ in the Retirement Management Analyst®, (RMA®) Curriculum.  This introduction is one of the many steps taken by RIIA, its members and graduates as we explore the relationship between the quality of retirement planning advice and the completeness of retirement advice.

Feedback from institutional members and practicing advisers pointed out that a Retirement Policy Statement should be presented in the form of a structured check-list of key questions as opposed to a prescriptive list of specific allocations, implementation processes and product selections.  One of the reasons is compliance and concerns over providing incomplete recommendations.

RIIA’s Retirement Policy Statement is thus a list of 10 steps/questions whose organization maps into the RMA Signposts, Curriculum Chapters and Procedural Prudence map.  This comprehensive format enables the creation of client-specific retirement policy statements.

RMA graduates use the Procedural Prudence map to identify the levels of service that apply to specific clients (checking the boxes to document the chosen path through the map) and then use the Retirement Policy Statement questions to verify the completeness of their work.  RIIA also uses this format to validate the completeness of ideas and white papers that are considered for integration in the RMA Curriculum.

It is validating to see items on RIIA’s list of trademarks and service marks used by others.  For example, on May 20, 2016, Morningstar released a Special Report under the title of “How to Create a Retirement Policy Statement.”  This special report lists 8 steps as follows:
Step 1: Specify retirement details.
Step 2: Outline your retirement portfolio strategy.
Step 3: Document retirement assets.
Step 4: Specify your spending plan.
Step 5: Detail how you’ll address inflation.
Step 6: Document your cash-flow generating system.
Step 7: Document your approach to withdrawals.
Step 8: Specify whether and when RMDs apply.
These steps trace a path through RIIA’s Procedural Prudence map. You can trace this path yourself by reading the Special Report and checking the boxes that apply on the Procedural Prudence map.  Morningstar’s proposed Retirement Policy Statement is a specific path, as opposed to a generalizable process, using:

• Risk tolerance to the volatility of financial assets as the metric for “client risk exposures” in retirement
• Total-return portfolio and safe-withdrawal rate as “implementation process approaches”
• A safe-withdrawal rate to provide retirement income in addition to other sources

Advisers using RIIA’s Retirement Policy Statement, would trace a path that answers the following questions:
1. Have you communicated the central responsibility of the household client, their understanding and approval of the retirement policy?
2. Did you document the initial needs and goals of the household client (using the relevant measures of “fundedness” to explain over-funded, constrained and under-funded status) and present the relevant capital market expectations?
3. Did you set the initial, client-matched, fundamental policy decisions and most importantly the selected planning strategy (investment-based, goals-based, product-based)?
4. Have you documented the needs and goals of the household client (using the life-cycle approach to cash-flows over the remaining time horizon and longevity expectations?
5. (a) Have you planned for and explained human, social and financial capital?
(b) Have you documented the needs and goals of the household client (using the Household Balance Sheet View℠ and the Household Balance Sheet Benchmarks℠ to analyze all assets and liabilities)?
6. Did you document (map) risk profiles and risk exposures of the household client?
7. Did you summarize the realistic investment objectives that match the household client’s needs, goals and risk exposures as well as the capital market expectations that support the retirement allocations recommendations and determine the plan’s threshold rate of return – the minimum annualized real return necessary for the plan to work?
8. Have you documented the choice of implementation process approaches?
9. Did you confirm the choice of account locations and make the product selections?
10. Are you prepared to present, implement and monitor the plan?

Join us at our Summer Conference in Salem (July 18 & 19) where we will review this and many other recommendations from our perspective of the View Across the Silos℠.

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