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Michael Falk: 'Retirement Planning Can Be Done More Simply'

The author and financial expert discusses what target-date funds get wrong, how investors should navigate the low-yield environment, and whether active management can add value.

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Our guest on the podcast today is Michael Falk. Falk is a partner at the Focus Consulting Group, where he specializes in helping investment and wealth management firms with investment decision-making, strategic planning, and succession. Previously, he was a chief strategist at Global Macro LP and a chief investment officer in charge of manager due diligence and asset allocation for a multi-billion-dollar advisory practice. Falk has authored or coauthored several books, including Let's All Learn How to Fish To Sustain Long-Term Economic Growth, Get to Work on OUR Future, and Money, Meaning, and Mindsets. He is a frequent public speaker and is also a CFA charterholder.

Background Bio

Let's All Learn How to Fish … To Sustain Long-Term Economic Growth, by Michael Falk

Get to Work … On OUR Future, by Michael Falk

Money, Meaning, and Mindsets: Radical Reform for the Investment Industry, by Michael Falk

"Jason Zweig: Temperament Is Everything for Most Investors," The Long View podcast,, June 29, 2021.

Retirement and Target-Date Funds "Psychological Safety & Career Risk in the Investment Management Industry," by Michael Falk and Bob Schmidt, Brandes Institute, February 2020.

"Enough About the Assets, Already!" by Michael Falk, Retirement InSight and Trends, 2014.

"Falk: Immunize Your Retirement Portfolio Before Optimizing,", June 30, 2014.

"Off With Your (Rules of) Thumbs!" by Michael Falk, Retirement InSight and Trends, 2015.

"Target Date Fund Warning," by Terry Savage,, July 6, 2021.

"Is Retirement Past Its Prime? The Economic & Behavioral Realities of Retirement," by Michael Falk, Retirement InSight and Trends, 2014.

"A Popular Retirement Rule of Thumb Isn't Wrong, but It Could Be Disruptive for Retirees," by Stephanie Yang,, July 9, 2014.

Investments and Asset Allocation "Michael Falk: Emotional Intelligence as Investment Alpha," Standard Deviations With Dr. Daniel Crosby, Aug. 17, 2021.

"Still Learning to Fish: Three Years On," by Michael Falk, CFA Institute, Jan. 23, 2020.

"Everything You Need to Know About Investing," by Michael Falk, Investments & Wealth Monitor, November/December 2020.

"Taking Investment Teams From Good to Great," by Michael Falk, CFA Institute, Oct. 4, 2018.

"Michael Falk: I'll Never Buy Bonds Again, and You Shouldn't Either," Money Life With Chuck Jaffe, Dec. 31, 2020.

"Crypto Dreamin'? The Good, the Bad, and the Ugly," by Michael Falk, CFA Institute, June 16, 2020.

"Green Carrots and Sticks: Incentivizing Climate Solutions," by Michael Falk and Joachim Klement, CFA Institute, June 23, 2021.

"An Alternative to the 60/40 Portfolio," by Ben Carlson, A Wealth of Common Sense, March 5, 2015.

"Michael Falk: How a Money Mind Deals With a Terminal Diagnosis," Money Life With Chuck Jaffe, Feb. 26, 2020.

Transcript Christine Benz: Hi, and welcome to The Long View. I'm Christine Benz, director of personal finance for Morningstar.

Jeff Ptak: I'm Jeff Ptak, chief ratings officer for Morningstar Research Services.

Benz: Our guest on the podcast today is Michael Falk. Michael is a partner at the Focus Consulting Group, where he specializes in helping investment and wealth management firms with investment decision-making, strategic planning, and succession. Previously, he was a chief strategist at Global Macro LP, and a chief investment officer in charge of manager due diligence and asset allocation for a multi-billion-dollar advisory practice. Michael has authored or coauthored several books, including Let's All Learn How to Fish To Sustain Long-Term Economic Growth; Get to Work on OUR Future; and Money, Meaning, and Mindsets. He is a frequent public speaker, and he is also a CFA charterholder.

Michael, welcome to The Long View.

Michael Falk: Christine, thanks so much. Great to be here with you.

Benz: It's great to have you here. You've described yourself as a contrarian on many matters of retirement planning. Where would you say your thoughts run counter to the conventional wisdom of how investors and their advisors should assemble retirement portfolios and go about spending from them?

Falk: I'm a simple guy, Christine. And I like simplicity wherever and whenever it is possible. The industry has pushed and pushed and pushed, in my opinion, toward complexity. And I think the average person cannot handle complexity. I think retirement planning can be done more simply. And that is where I'm probably the most contrarian. And, of course, how I would suggest people execute on that.

Ptak: Can you give us a couple of examples of how you would simplify what passes for conventional wisdom right now when it comes to retirement planning in the industry today?

Falk: Happy to, or at least try. Many years ago, I coined a term, you should immunize before you even try to optimize. And what I'm referencing here is, take your entire spending plan, everything you spend money on every month, and divide it into two pieces: fixed spending, happens no matter what; and fun or aspirational spending.

Let's just start there. Let's get a handle on that. Then let's ask a couple of questions. To what extent will Social Security or any pensions you have--let's just look at those two tools; fixed guaranteed life payments. To what extent do you have coverage of your fixed required monthly spending? If you have coverage, then we know that your fixed spending is immunized. The goal here then, if it's not, to what extent should we be looking to annuities, or laddered bonds, or reverse mortgage to immunize that fixed spending. Because then once we do that, we can bias the portfolio heavily toward equities, or other risky assets, for the aspirational spending because even if there is a bad year, you can still cover your costs. You don't have to worry about liquidating at a bad time.

Benz: You referenced three possible solutions for that immunization: the laddered bond portfolio, or reverse mortgage, or some type of an annuity product. Those are complicated products. How would you suggest investors proceed in trying to figure out which, or which combination of those solutions, might make sense in their situation?

Falk: Christine, that is where we can only get so simple. Specific with annuity contracts, find an annuity expert. The complexity in these things that seems straightforward is real. Laddered bonds, well, here is simplicity, given interest rates today, or expected in the near future, maybe we don't even have to think about that choice. Reverse mortgage, now this gets into other bequest aspects of someone's estate plan. And can they stay in that house as they age? Are they going to have to sell it? And it gets into a different conversation then that connects with retirement planning that has to then get into the estate planning side of the dialogue.

Ptak: I think we're going to come back to this tension between precision and simplicity in retirement maybe in the case of target-date funds. But before we do that wanted to talk about another dimension of retirement planning, which is the behavioral dimension. Behavioral finance is a key area of interest for you. What's your take on the behavioral aspect of retirees who are averse to living on anything but income from their portfolios? They don't want to sell anything, even if it's appreciated a lot and is adding risk to their portfolios. First, do you think this is a problem? And, if you do think it is, how do you think advisors can help change their clients' minds in these instances?

Falk: I think one of the greatest continuing education or continuous improvement steps that advisors can take is learning about behavior and psychology generally. For retirees, and please people, start to try and understand that--the fear is that they're going to run out of money before they run out of life. So, anything that connects to that fear is something that you will need, or it would be beneficial, to counsel them on. So, Jeff, you asked specific to behavior, I'm answering more broadly. And if that's not a good enough answer, let's continue the dialogue with each other, but that's where I would start.

Benz: I would guess it's fairly common that advisors encounter clients who say, "Just build me a portfolio that kicks off this 4% income distribution that I need." How do advisors push back on that? Assuming that they think that idea is ill-advised. Do you have any thoughts on that?

Falk: Well, it's really simple. If you have immunized, Christine, we don't have to bother with that. We don't have to take the risk of reaching for yield in a low-yielding environment, because we don't need a "4%" yield; we've covered the fixed expenses. Now, we can talk about, based upon your prior calendar year's rate of return, what rate of liquidation can you take from your portfolio--be it yield or capital gains, it doesn't matter--to enjoy the current year. And I have created a three-part rule for how you look at the prior year's return. If it's above this, if it's below this, if it's in between--how much you can spend out of your portfolio to have a great year of spending.

Ptak: I wanted to shift to target-date funds, which I referenced before. You've been critical of target-date funds, if I'm not mistaken, calling them a market solution masquerading as an investment solution. Can you summarize why you're so down on these products?

Falk: Well, let's start with a couple of truths. Generally speaking, when people are younger, they have very little investment capital and lots of human capital. And when they're older, they have a decreasing level of human capital, but not decreasing as people did 50 years ago, because we're more of a knowledge-based economy now. And, knock on wood, they have a lot of investment capital. This is something that target-date funds should relate to. Meaning, when people are really young: "We can have really high equity balances or take a lot of risk in the portfolio," so to say. But people don't have a lot of investment capital, so it doesn't matter too much. When people are older, when knock on wood, they have a lot of investment capital, now, the amount of risk you take in the portfolio is really, really critical because based upon whether they have a lot of savings or little savings, they're in a bull market or it's a bear market. Let me say this more simply, as everyone gets older and gets closer and closer to their retirement, the dispersion in the investment capital balances expands. Target-date funds treats that dispersion as a singularity; it doesn't allow for the expansiveness of the difference across the population. So, if people retire in a bull market, no harm, no foul. If they retire proximate to a bear market, target-date funds are going to hurt too many people.

Benz: So, do you have thoughts on what might be a better alternative? What should all-in-one retirement-decumulation products look like?

Falk: I wish an all-in-one could exist. But let's just play with math for a second, and I'm so sorry for your listeners. Years ago, people took a 50/50 portfolio stock bond or a 60/40 policy-type portfolio and use that as a static in lieu of a target-date fund rolldown. And what they found was it performed just as well, with rebalancing and that balanced-type approach. This is why, Jeff, I say it's a marketing solution masquerading because the age-old balanced fund would have been just as successful. And now with the rising equity levels in many target-date funds at older ages, those balanced funds look kind of pedestrian, kind of conservative even. So, Christine, the one and done, what if when people retire 65, 66 to 70 years old, when that date comes up, they purchase an advanced life-deferred annuity, a deferred annuity that starts paying when they're like 80 or 85. That helps with the long-term immunization. And now we think about their retirement in terms of buckets of years. Christine, I know you like buckets. And we now think about a 10- to 15-year bucket that we have to account for. Well, that's a heck of a lot easier than wondering about a 20-, 25-, 30-year retirement, what do we do?

Benz: I wanted to follow-up on the annuity assertion, and it does seem like there is a lot to like about that idea of purchasing some sort of a deferred annuity. But it seems like retirees really are quite resistant to purchasing annuities. And that's, I suppose, in part because of behavioral issues. But can you talk about that--how either individual investors who are contemplating a product like this or advisors who are counseling their clients, how can they help them get over that hump of purchasing an annuity, even though they may have a resistance to do so?

Falk: This is a large hill for advisors to climb. But it's an important one for them to attempt to do so. Because if the master fear, or primary fear, of retirees is outliving their money, and this is a solution, a really good solution, then we have to get into a deeper level of conversation of what is triggering your dislike of something that addresses this giant fear that is in your vision. But another way of thinking about this: What if we change the type of annuity contract? And bear with me now, it's a little complexity. Instead of laddering bonds, what if we laddered periods, certain deferred annuities: five-year periods certain that begins in five years, five year periods certain that begins in six years. We ladder those annuity contracts, because what's really interesting about those, the vast majority of the money that people put in them are paid out in those five years. So, this loss aversion type of fear, where if I put my money in this, I might lose it. We could defeat it with a different type of specialized annuity contract and build a ladder that will give them a yield much, much higher than laddered bonds today. Maybe there is a win-win somewhere in this.

Benz: I wanted to follow up on your assertion earlier about withdrawal rates. It seems like there is a lot of research that would suggest that new retirees, especially, should be conservative in their withdrawal rates. And then other research suggests that using a varying approach where you're taking less in bad years and potentially more in better years is the way to go. You referenced that you have some thoughts on how retirees can approach that. Can you talk about that?

Falk: Happy to. First, we try and immunize the fixed spending. And if we're successful and we're able to do that, we can allow risky assets to fill most of the balance of the portfolio. But now we look at the prior year's results--we don't forecast, we simply look at the prior year's results. And if the returns are above x--please excuse, I want to use that as a reference point for right now--if they're above x, then you can liquidate this much. If they're below y, then you can liquidate only this much, which is much less. And if it's in between, then we have variation. My solution for those x and y numbers is going to be published before the end of 2021 in the Retirement Management Journal. I've actually put it out there for everybody to see--no secrets, full transparency on what I think those numbers should be.

Ptak: Maybe we'll shift to investments in asset allocation at this point. You've worked in the investment industry a long time. One thing that we hear repeated a lot is that investment management is becoming a commodity and that there is little opportunity to add value in this arena. Do you agree?

Falk: No. I 100% disagree. But I disagree for a different reason, which is kind of typical of me being a contrarian. Here is why I disagree. Asset allocation is not a commodity, how you decide to piece together the portfolio in different asset classes is not a commodity. The individual asset-class decisions are more commoditized themselves than ever. However, I am a staunch believer that active management can add value. But there are specific ways that it can. And there is no reason to invest with an active manager who is not leveraging some of those abilities. I'm happy to dive deeper if you wish on that. Absent that, you can index a lot of the portfolio, which we could say maybe as commoditization, but you cannot index the asset allocation because that has to connect with the client and their spending goals.

Benz: I wanted to follow up on the active-management assertion. Can you talk about areas where you would recommend active management? And also, how investors can take the measure of an active manager?

Falk: Well, let's start with taking the measure and then work backward. Instead of looking at a trailing return--three-year, five-year, 10-year, and so on--because we know how those may or may not be repeated easily. Why don't we start looking at the number of rolling three-year periods or rolling five-year periods where that manager has competed favorably with their closest index benchmark. So, I think measurement or benchmarking has the ability to be improved quite a bit in the industry. But in terms of what it takes for an active manager, I'm not going to speak specifically on the age old, all small-cap managers, or emerging-markets managers. While there is still some level of truth, we're still not seeing a lot of active managers, even in those more highly dispersed market segments. What I want to see from active managers, and I have counseled a lot of them, is I want to see a little more concentration; I want to see how you research your ideas differently; I want to see how you size them in the portfolio differently; I want to see how you sell them differently. When I do this work counseling active managers, I dig in each and every one of their processes to say let's raise the probability of success based upon your decision-making quality. So, do I think active management can win? Yes. The only way for people to pick those winners, we need much better benchmarking to help them and that's not a perfect solution, but it will help us get toward a better solution.

Ptak: Over the past decade-plus we've seen dramatic asset outflows from active funds and into passive products. Do you think investors are overdoing the stampede into ETFs and index funds' passive products so to speak, or is it merited?

Falk: I have an opinion that I'm not holding tightly. You've heard a lot of confidence in my responses, you're not going to hear confidence here. I don't think they're overdoing it. I think until or unless active managers have shown the ability to add value, or advisors have shown the ability to add value, active-management outflows are going to continue. If they're overdoing it, well, we have greater and greater concentration in the stock market. And that can be measured by what's known as the Herfindahl Index. Forgive me, again, I'm bringing some complexity in. Let's start complexity and see how simple we can get. Anyway, as the market becomes more concentrated, I become more concerned, because that means the economy is not as diverse. And when and if we have a break, a correction in markets, there is a risk that it is more violent and deeper. So, that's why I don't think it's overdone, but I see issues with the level of concentration that we're pushing in the overall marketplace across an aggregation of investors.

Benz: So, at what point would you be really concerned and caution investors about the risk of being invested in index funds for their equity exposure?

Falk: Well, my hope is that we never face that risk because a couple of different things maybe has occurred. Number one, indexes are constructed a little bit differently. GICS, or the sector weightings, are rethought a little differently. Maybe we have fewer winner-take-all companies in our economy. And so, this actually self-corrects, to some extent. If we start getting closer toward 70% or 80% aggregate index. And now we're talking about S&P 500, let me be very clear about this. I'm not as concerned with other indexes, specifically. Then I really worry that when and if we get a bear market, it will be more damaging than things that we've seen in the past.

Ptak: Wanted to shift to asset allocation. For the typical individual investor, which investment assets belong in their tool kits above and beyond the plain-vanilla stocks, bonds, and cash?

Falk: I happen to like vanilla. I know you're not surprised at this point. How much do we want to spice it up? Well, today we have the massive challenge: Bonds are yielding next to nothing, and bonds have greater risk as a result of that. So, when we think about cash, bonds, and stocks--nobody likes cash because it's yielding basically zero. I think cash has optionality; bonds, maybe not; stocks, are they too expensive? So, Jeff, to your question, do we have to look further afield to other asset classes to beneficially add diversification? I think the answer is, yes. But I may be slicing this a little bit too thin. Let me try. What about preferred stocks as an alternative to bonds? What about other types of devices? Master limited partnerships if you're OK with energy, but energy is a commodity that's linked to economic growth. So, that may not work. What about gold as a form of insurance? Some people think that that's antiquated.

So, Jeff, my response to your question: There is not a lot of spice that we should or can add without taking real risk in terms of broadening the asset allocation. I think if we get tired of vanilla, we enter into different risks that we may not be cognizant of; maybe vanilla is not so bad.

Benz: What do you think of hedge-like alternative products that are available to retail investors?

Falk: I think the best hedge fund managers are closed and have been closed for many years to investors. I think most of the hedge-like strategies that are available today for retail investors are making an attempt to bring something that could be of value down to the retail community, but I'm highly skeptical. I've not seen any of these products that I've seen. And I'm not saying I have an exhaustive view, but I've not seen any of them live up to their claims.

Ptak: Many investors are hesitant to buy bonds today, and that's a theme that we've touched upon a few times during the conversation. It's for obvious reasons: yields are low, bond prices could be vulnerable if rates head higher. So, how do you suggest investors should approach bonds today? How should they think about them in the context of an overall diversified portfolio?

Falk: Just say no. And I apologize for bringing back that old tagline. The policy portfolio known as 60/40--60 stock, 40 bond--essentially has a 40% hole in it today. So, the first place I turn is to classic worldly wisdom. Peter Bernstein, wonderful, educated historian that is not with us anymore in the investment industry, once said, "75% stock, 25% cash is a functional equivalent of the 60/40 policy portfolio." So maybe we have a steppingstone away from bonds. And then what we have to do is we have to think about the 75% equities with things like preferred stocks, dividend-paying companies a little bit more to, again, preserve some yield, and not be so harsh and negative about cash, because it will be a wonderful thing, if and when we get corrections, to be able to add real long-term wealth to your portfolio with rebalancing.

Benz: A counter argument, though, would be that with bonds even though yields are very low, at least you would have the opportunity to spend through pure bonds or bond funds if you encounter some sort of equity market turbulence and potentially pick up a little bit better return than you could have with cash. How should investors assess that trade-off? It sounds like you don't think it's one worth making?

Falk: I'd say their distance to their expected retirement. If they're further away from retirement, they are better off rebalancing with cash, and not bothering with bonds, and maybe taking that tip from Peter Bernstein. If they are closer, or near, or in retirement, then you already know my answer from a little earlier in our discussion: If they have immunized, they don't have to think about bonds at all.

Ptak: Inflation has come to the fore very recently, but it's an open question about whether it will prove transitory or stick around longer. What's your take?

Falk: I'm going to give you a very unsatisfactory answer. It's transitory for people on the higher socioeconomic ladder, and it's less transitory for people on the lower socioeconomic ladder. Inflation historically has been caused by too much money chasing too few goods. The world we live in today, because of globalization, because of technology, these two things will prevent inflation from ever becoming likely a long-term concern again, that's why I say transitory. However, if we pull back from globalization that has real inflationary risks--so I do look at geopolitics for that reason. Right now, I'm not overly concerned, but we are reconfiguring supply chains around the world, because of the pandemic and because of geopolitics. The reality is today, we have the ability of producing more goods more quickly and cheaper than ever before in history. So, because of that, inflation, conceptually, should be relatively easy to manage. However, inflation has never been uniform across the socioeconomic ladder. So, we have to acknowledge, we have to appreciate that not all inflation impacts all people the same way. And Jeff, I'm sorry, that may not be very satisfactory.

Ptak: Not satisfactory, but can you give an example of where there could be differences in the inflation experience that people have depending on their circumstances or their station in life?

Falk: I'll give you a real classic example: food. As food becomes more expensive, when food is a larger part of a family's consumption based upon their income level, inflation hits them harder, whereas people who have a higher household income, it's a lower percentage of their overall income, and that becomes less of an impact. A few years ago, geopolitically, you may remember the thing called the Arab Spring, when there was an uprising in the Middle East against some of the leadership--the driver behind the Arab Spring was an increase in food prices.

Benz: Right now it seems like inflation is across the board--that it's equal opportunity. And it seems like high-income folks are getting hit hard with vacations they might want to take and cars that they might want to buy and so forth. So, doesn't it seem like it's fairly evenly dispersed? Is that anomalous right now?

Falk: I don't see it that way, Christine, but very useful conversation. When you talk about a vacation or a new car, those are not required expenses for people on the higher socioeconomic ladder. There are choices for people lower on the ladder--the required expenses on occasion, not the vacation, don't get me wrong. The car--if their car breaks down, so it doesn't affect everybody the same way because some people have choice. This goes back to my splitting the overall spending plan between fixed and aspirational. When fixed is a bigger part of your overall spending, inflation will hit you harder: you have more shock risks of unemployment, or if you have a bad health incident. So, it really is what percent of your overall spending is fixed--whether it's because of debt payments, or just basic expenses in your household.

Ptak: Let's go back to food inflation for a minute, which you cited as a potential risk for some that are perhaps lower in the income strata, so to speak. What should they do to address inflation, whether it's at the portfolio level or otherwise? Are there investment tools that would address that risk of eroding purchasing power? And, in this case, food being the example, or should they be thinking about mitigating that risk in other ways?

Falk: They should initially think about mitigating the risk outside of their investments to the extent they can, such as refinancing debt to be a lower expense. Get rid of balloon payments, to the extent you're able; make sure you've got property-casualty-type insurances, if you experience some sort of risk in your life. Then when it gets to the investments, I've often wondered why it is that people don't try an investment allocate, asset allocate, to connect with their spending. Let me give you the simplest example I can think of: In your HSA, if you have one for your healthcare, why not invest your HSA money in health-related stocks, so that over time as there may be inflation in the cost of healthcare, you get the benefits with the investments in your HSA to cover those costs.

Benz: I guess it depends on your use case for the HSA, though--not to get too far into the weeds--if someone is actively spending from the HSA that would give them a really volatile portfolio mix that they wouldn't want to be drawing upon to cover their healthcare costs on an ongoing basis?

Falk: Spot on, Christine, the use case matters. If they're going to wait to spend, then the investment idea I just shared as an example makes very good sense. If they're using it currently to cover out-of-pocket expenses, then that falls away in a heartbeat.

Benz: Wanted to ask about cryptocurrency. You've written about crypto, you're skeptical of crypto as an investment asset. Can you outline your thesis there? And do you ever envision a day where you might recommend crypto as a portion of investors' long-term portfolios?

Falk: Let me start with my skepticism: it's not a currency, it's an asset, and it's a volatile asset at that. So, if people want to include a volatile asset in their portfolio, at a small percentage, even though I'm skeptical, I don't have a problem with that, as long as it's a small percentage. By small, I mean under 5%. But just respect, it is a speculative asset; it is not currency. And it will not likely ever become currency, because no major government wants their currency to be replaced by something they don't have control of. So, they will do everything they can to make sure it doesn't happen. Right now, you have people who like or dislike things like Bitcoin or Ethereum--the two biggest crypto assets. But the reality is governments, generally major developed economies, including China, don't like it. And that means that it has real risk of growth. But let me give you "what if." What if it does grow, and it does replace? Well, then your under 5% allocation is going to be upward of 20%, 25% in your portfolio, and you got to think about how you're going to rebalance. But, more specifically, governments have to think about changing their entire tax code, because if they don't have control of the currency, and these are in private, anonymous accounts, the entire tax code would have to shift to a value-added tax at point of purchase, or the entire economy would fall apart.

Ptak: Want to touch on another hot topic, which is ESG funds managed with environmental, social, and governance principles in mind, continue to garner substantial inflows. Do you think investors can incorporate ESG principles into their portfolios without hurting the results?

Falk: I do. And here is where I look at E, S, and G as a different thing. What if I reposition or rethink of these three different categories as long-tailed risks that could impact any business that you invest in? Absolutely, unless you are a trader, you're more of a long-term investor; you should be concerned about long-tailed risks. And investment firms should also be concerned with those, so they should be incorporated. And in the longer run, Jeff, if this is done well, I don't think they're sacrificing returns. But I have to be specific. I'm talking about the long run.

Ptak: So implicit in that is that the market hasn't incorporated those long-tail risks into prices? Why would that be?

Falk: Well, let's just think about location for a second. If we have a continuation of global warming--yes, I do believe we have experienced this--and oceans rise, we know coastal areas are going to be impacted. Where is that company located? Jeff, that's the simplest example I can give you. If they're located where there is much greater risk of flood, or other types of erosion damage, well, that's a long-tailed risk, maybe you don't want to invest in that company.

Benz: What do you think about custom indexing as a way of assembling a portfolio that addresses an investor-specific concerns/interests in the ESG space, or perhaps incorporates other factors such as tax-efficient management, or an emphasis on dividend-payers, or whatever it might be?

Falk: I am open to it. Let's just be clear, it's a form of active management; it's not custom indexing. I love the labels people give. It's a form of active management. However, it's active management that directly ties to the client's investment goals. Given that premise, I'm completely open to it.

Ptak: Let's shift and talk about the advice business for a minute. We recently interviewed Jason Zweig for the podcast. He made the point that he believes fee compression in the financial advice space is inevitable. Do you agree?

Falk: I do agree. But let me be specific in terms of how it has to happen. Either a) we need an increase broadly in financial literacy of the buyers of these services, so they're going to ask to pay differently; or b) the advisor themselves are going to change their pricing for their own competitive reasons. The reality is the prices today are higher than I would argue they will be in the future. But one of those causations, Jeff, a or b has to occur. And I think it's starting but it's on the fringe, but it's going to gain steam. I just can't give you a time period.

Benz: If you were coaching someone on seeking a financial advisor, what would you tell them to look for in broad brush strokes and then in a little more detail?

Falk: The first thing is, how much are they asking about what you want to accomplish versus what they can deliver? Number two: Are they talking about the things that they can unequivocally deliver, such as household alpha-type things, better or improved insurance counseling, better or improved tax counseling, better or improved retirement counseling, better or improved estate counseling, and less on the investments. Investment markets are unpredictable, they go up and down. When the conversation is focused on investments, that's about hope. When it's focused on the other principles of financial planning, it's not focused on hope, it's focused on doing really good planning and locking in what I refer to as household alpha.

Ptak: You were diagnosed with amyotrophic lateral sclerosis, or ALS, in 2019, and since that time you've redoubled your efforts to live a purposeful life. What are the key things you hope to achieve?

Falk: Improve financial literacy, broadly. If I can only help financial advisors, so be it. Improve dialogues on global policy. I've written two books on public policy. What I am hoping to accomplish is ideas or beliefs or research that I have in my head, because I've been at this for three decades-plus; I want to get it out into the world. So, per chance, I can positively influence someone, somewhere. That will mean when I leave this world, I might leave it a little bit better than when I came into it.

Benz: The topic of financial literacy is of keen interest, I think, to us and to a lot of our listeners. Do you have thoughts on what moves the needle in the financial literacy space? I think there is some frustration. I know I felt this where you're teaching to a group of individuals some sort of curriculum and really feeling that a lot of it may not really stick and may not improve their outcomes. So, do you have any thoughts about what really works in this space?

Falk: I have thoughts. I don't know if they translate into greater success, Christine. This is another one of those giant hills to climb. What I think of is point-of-sale. Think about when somebody is, or used to be, in line at a grocery store, and the candy and the gum that was at the point of sale when they were checking out their groceries. And the reason why the candy and gum was there, and how successful it was. I can't help but wonder if we can't position various financial and insurance tools to be more point-of-sale. Example, you're buying a car, let's review your auto insurance; you're buying a house, let's review your homeowners insurance. You have a child, let's review your life insurance; you have a well-paying job. So, Christine, I've given you a short story, I apologize. I want to try and bring or help bring a point-of-sale perspective into this, because unfortunately, the average person is not a continuous learner. So, they're not going to learn about this stuff over the time of their life when they need to. If we can make it more point-of-sale, I think we increase the probability.

Ptak: What advice do you have for those of us who want to live more deliberately and with a greater sense of purpose?

Falk: First of all, I hope that you've reached a point of life where you can opt to do this. And I don't mean in terms of age; I mean, in terms of where you are in your personal journey, about defining what is enough. Once you can define that--and it's a journey for different people in different ways, and it takes a different amount of time--when you can define what is enough, now you can open yourself up to being more happy, believe it or not, and being more constructive and purposeful on what am I going to choose to do? Not what am I going to choose to pursue?

Benz: Speaking of happiness, you've written that the greatest joy in your life so far was coaching your son's baseball team. What about that experience was so meaningful for you?

Falk: I played baseball until I was 31 years old. It was my first love. I still love it, have never been able to get away from this one. And the joy that I felt when I was successful in competition, I came to understand, paled in comparison to coaching another person--a child in my love, watching their joy. When they learn something, they executed on it, and they had a level of success. I learned that seeing somebody successful from my teaching, even with something as basic as baseball, brought me more joy than anything else. So, if my writing, if my speaking on podcasts like this, can help somebody learn and do something a little bit better, it's been a life well lived.

Benz: Well, Michael, we really appreciate your thoughts and appreciate your spending time with us today. Thank you so much.

Falk: Thank you, both. Wonderful questions. I hope that you felt my responses were equally wonderful. And that when people have a chance to listen to this, they do actually get some value out of taking the time.

Benz: I'm sure they will, Michael. Thank you so much. You were great.

Falk: Cheers.

Ptak: Thanks again.

Benz: Thanks for joining us on The Long View. If you liked what you heard, please subscribe to and rate The Long View from Morningstar on iTunes, Google Play, Spotify, or wherever you get your podcasts.

You can follow us on Twitter @Christine_Benz.

Ptak: And @Syouth1, which is S-Y-O-U-T-H and the number 1.

Benz: George Castady is our engineer for the podcast and Kari Greczek produces the show notes each week.

Finally, we'd love to get your feedback. If you have a comment or a guest idea, please email us at Until next time, thanks for joining us.

(Disclaimer: This recording is for informational purposes only and should not be considered investment advice. Opinions expressed are as of the date of recording. Such opinions are subject to change. The views and opinions of guests on this program are not necessarily those of Morningstar, Inc. and its affiliates. Morningstar and its affiliates are not affiliated with this guest or his or her business affiliates unless otherwise stated. Morningstar does not guarantee the accuracy, or the completeness of the data presented herein. Jeff Ptak is an employee of Morningstar Research Services LLC. Morningstar Research Services is a subsidiary of Morningstar, Inc. and is registered with and governed by the U.S. Securities and Exchange Commission. Morningstar Research Services shall not be responsible for any trading decisions, damages or other losses resulting from or related to the information, data analysis or opinions or their use. Past performance is not a guarantee of future results. All investments are subject to investment risk, including possible loss of principal. Individuals should seriously consider if an investment is suitable for them by referencing their own financial position, investment objectives and risk profile before making any investment decision.)

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About the Authors

Christine Benz

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Christine Benz is director of personal finance and retirement planning for Morningstar, Inc. In that role, she focuses on retirement and portfolio planning for individual investors. She also co-hosts a podcast for Morningstar, The Long View, which features in-depth interviews with thought leaders in investing and personal finance.

Benz joined Morningstar in 1993. Before assuming her current role she served as a mutual fund analyst and headed up Morningstar’s team of fund researchers in the U.S. She also served as editor of Morningstar Mutual Funds and Morningstar FundInvestor.

She is a frequent public speaker and is widely quoted in the media, including The New York Times, The Wall Street Journal, Barron’s, CNBC, and PBS. In 2020, Barron’s named her to its inaugural list of the 100 most influential women in finance; she appeared on the 2021 list as well. In 2021, Barron’s named her as one of the 10 most influential women in wealth management.

She holds a bachelor’s degree in political science and Russian language from the University of Illinois at Urbana-Champaign.

Jeffrey Ptak

Chief Ratings Officer, Research
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Jeffrey Ptak, CFA, is chief ratings officer for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc.

Before assuming his current role, Ptak was head of global manager research. Previously, he was president and chief investment officer of Morningstar Investment Services, Inc., an investment unit that provides managed portfolio services through fee-based, independent financial advisors, for six years. Ptak joined Morningstar in 2002 as a senior mutual fund analyst and has also served as director of exchange-traded fund analysis, editor of Morningstar ETFInvestor, and an equity analyst. He briefly left Morningstar to become an investment products analyst for William Blair & Company, and earlier in his career, he was a manager for Arthur Andersen.

Ptak also co-hosts The Long View podcast with Morningstar's director of personal finance and retirement planning, Christine Benz. A full episode list is available here: You can find him on social media at syouth1 (X/fka 'Twitter') and he's also active on LinkedIn.

Ptak holds a bachelor’s degree in accounting from the University of Wisconsin and the Chartered Financial Analyst® designation.

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