Inconsistent Odds in Monte Carlo! Developing Needed Standards for Retirement Income Planning Tools
Since the formation of the Retirement Income Industry Association (RIIA) a number of initiatives of genuine importance to its members have been launched. One of the most important is an effort to develop sound principles for the creation of industry-wide standards for the development of retirement income calculators, tools and illustrations that promote various retirement income products and strategies. On August 10 RIIA issued a press release on this subject but the effort is deserving of additional attention.
Led my Russell Investment Group’s, Richard Fullmer, CFA, RIIA’s Methodologies Committee has crafted and introduced a Statement of Principles to provide needed guidance in this critical area. Other members of the Methodologies Committee that assisted in the development of the Statement of Principles include Moshe Milevsky (IFID Centre), Anna Abaimova (IFID Centre), Peng Chen (Ibbotson Associates), Ben Williams (Retirement Engineering, Inc.), Phil Edwards (Standard & Poors), Pirooz Vakili (Boston University), Kazi Ariff (Bank of America), Kim McSheridan (Symetra Financial), Lowell Aronoff (Cannex Financial Exchanges), Bob Padgette (Klein Decisions) and Thomas Idzorek (Ibbotson Associates). The Methodoligies Committee will deliver a presentation on its work at the upcoming RIIA Annual Meeting and Awards Dinner to be held in Cambridge, Massachusetts on September 16-17, 2007.
Says Fullmer, “A significant number of retirement income projection models have been introduced into the marketplace over the years, and RIIA believes that many of these models may need improvements in disclosing key underlying assumptions or limitations. In addition, the output of various projections differs widely even with consistent input. This may lead to confusion among the public which threatens a loss of confidence in the financial services industry.”
Because of these concerns and inconsistencies, the RIIA Methodologies Committee took on the task of establishing a Statement of Principles as the first step in creating industry standards for developing illustrations, calculators, and other materials
necessary for retirement income planning and promotions. The Principles seek to promote the use of clear and effective modeling techniques, explanation and communications through complete disclosure of assumptions and the use of consistent terminology. To view the Statement of Principles, go to www.riiausa.org.
RIIA’s Methodologies Committee also intends to provide:
A set of guidelines to these Principles which will provide guidance on meeting the RIIA standards.
A set of “calibration points” by which model developers can compare their assumptions and results against.
“As the baby boomers march into retirement, their shift from focusing on accumulating retirement savings to creating a secure retirement income makes consistency, clarity and understanding of income modeling more urgent that ever,” contends Francois Gadenne, Founding Chairman of RIIA and CEO of Retirement Engineering, Inc. “RIIA is an organization that succeeds because of its members’ active leadership and participation. The members of our Methodologies Committee felt strongly that RIIA take responsibility for improving projection models because a failure to do so is a disservice to both the retirement income industry and the clients we serve. It is gratifying to see the early results of their important work,” says Gadenne.
A full report on the Statement of Principles as well as updates from the other RIIA Committees will be provided at the upcoming RIIA Annual Meeting and Awards Dinner on September 17, 2007 at the Royal Sonesta Hotel Boston in Cambridge, MA.
To learn more or register for the event, please go to www.riia-usa.org.