Like the Biblical Joseph, Harold Evensky has worn a coat of many colors over the "billion years" that he likes to say he's been in this business. He's an advisory firm owner. He's an investment researcher. He's an academic. He's a leader of the profession by words and deeds and through the bully pulpit he's built as a source and mentor to journalists.
He's a conscience of the profession. He's a staunch proponent of the fiduciary standard for all advice givers. He's a believer in the next generation of advisors. He was an early adopter of the fee-only business model. He's figured out a succession plan for the advisory firm that bears his name and his partner's in business and life. Yet he remains a questioner not only of the conventional wisdom of advisors but of his own opinions as well. Never will Harold Evensky, in the words of John F. Kennedy, "enjoy the comfort of opinion without the discomfort of thought."
Here's one small example. Evensky was long a critic of annuities, but after the financial crisis of 2008-2009, he reformed some of that thinking. Now, he suspects that annuities, especially immediate annuities, "will be the most important investment vehicles of the next 10 years."
But don't mistake Evensky's quotability with glibness, or his lofty perch as the recipient of many leadership awards for complacency.
When asked what's next in his career, he joked that "my long-term goal was to be a dilettante; that's where I am now." His definition of "dilettante," however, involves someone with a range of interests; Evensky is no dabbler, even and especially in an academic environment.
For years he's been an adjunct professor in the graduate financial planning program at Texas Tech University. "I teach a wealth management class to graduate and doctoral students," he said. He now lives in Lubbock, Texas, with his wife Deena Katz, who also teaches at the university and shares evangelist duties for the school. Their advisory firm, Evensky & Katz, based in the Miami suburb of Coral Gables, is run by a managing partner and a five-person management committee. "I'm not responsible on a day-to-day basis" for Evensky & Katz the business, Evensky said. An example: "We're moving offices," he said as we spoke in an early December interview. "I'm not involved."
Cultivating a New Kind of Research
Describing the latest color to his coat, he said that at Texas Tech, moving forward "my responsibilities will be the same—teach one class a semester," but he'll also be "more proactive at meetings and conventions, talking about the Tech program" and working with graduate and doctoral students on research projects.
With Evensky involved, however, that research will be different from what's preceded it. "Most research is sociological research—women are more conservative than men, for example. That's fine if I'm setting policy, but as a practitioner, it's not useful." Without further prompting, he lists areas of research that would be practical to advisors.
On risk management: "We've done some research on saver reverse mortgages—I was always against them, but these are interesting risk management tools. I've looked at home equity loans, but in the last recession the banks wouldn't do them."
Then on to investing: With a graduate student at Texas Tech University, he conducted some research to look into whether "active management comes to the forefront in bear markets. We concluded that it's simply not true."
Then retirement planning: What's a safe withdrawal number? Many suggest that if you make adjustments along the way you can take more out than the traditional 4%, but Evensky's not convinced absent better research into the matter. "As people get older, people spend less" is the common wisdom, but Evensky's own experience suggests otherwise. "They may get older and sicker, but they continue to enjoy spending money," which has serious repercussions for retirement planning.
Then on to technology: "There's lots of financial planning software out there that delivers very different conclusions" with the same inputs, he pointed out. "Why?"
Beyond what practitioners use to conduct financial planning, he's also worried about what consumers use to plan. "There's a lot of public software that's even more dangerous," he said. "I'd like to take a test case and have all the software" run its calculations to see which programs are best.
Then there's the area where software and investing meet. "We live in a low-return environment. What does that mean for implementation?" At Evensky & Katz, "we've moved to a core and satellite" investing approach for clients, but still he wonders, "Is that appropriate?"
'We Need to Do a Better Job for Clients'
There are other practical areas where some good academic research would be helpful, he argued. "There's too little focus on transaction costs and taxes, so even half a percent has a huge impact" on outcomes for clients.
Even apparently simple issues like property and casualty insurance could stand some academic rigor. "What's a reasonable deduction on clients' car insurance: $50 or $5,000? It's not complicated, but I don't know, and there's not much guidance for practitioners."
As for those clients, Evensky said, "I hear a lot about 'I need much more money for health care', but if they do, they won't be spending" those dollars "on anything else we've factored in. If we do factor in more for health care, what do we drop?" What about long-term care? "The reality is that if someone goes into LTC, they won't be taking world cruises or going out to dinner every night."
As he has done throughout his advisory career, Evensky challenges his new colleagues in academia to improve. "They're making simple assumptions" in academic research, failing to "bring in taxes and transaction costs."
He'd like to see some better research on topics like risk tolerance—"How do you even define it?" he asked—and behavioral finance, which he said is "so interesting, but how do we integrate it into our practices?"
