Will RIAs be Liable for Failed Retirement Income Planning?

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I admire the investment skills RIAs demonstrate. Over a 40-year career, I’ve been impressed with the RIAs I’ve met. The significant majority are quite skilled and take their fiduciary responsibilities seriously. They care about their clients, and they demonstrate it on a day-to-day basis.

Let me share a story of an RIA who will be forced to mount a legal defense because of a lawsuit that is likely to be filed by two of his retired clients.

When I was a young advisor, I learned about the “rule of 100.” This longstanding piece of wisdom provides an age-based, asset allocation guide to the level of risky assets any investor should own. The math is simple: 100 minus the investor’s age equals the percentage of assets allocated to equities. The rule indicates that a 65-year-old investor should allocate up to 35% to equities.

Many investment advisors have moved past the rule of 100 out of the recognition of the differences in priorities among various investors. Some have suggested that an investor who is more risk tolerant might add 10% to the equity allocation, while a more conservative investor might subtract 10%. In any case, the rule of 100 is simply a guide, not a perfect prescription for the best long-term results. But as a guide it offers value. Whether one views it as ideal or flawed, in the context of the rule of 100, it would be hard to justify a 100% equity allocation for a retired investor over the age of 70.