AQ Solutions Interview: J.R. Robinson of NestEggGuru

INTRODUCTION:

For this edition of the AdvisoryQuest Blog Interview, I am happy to have John H. (J.R.) Robinson, Co-founder and CEO of a new niche player in the financial planning software market, Nest Egg Guru.   J.R. is also the founder of Financial Planning Hawaii and brings his 27 years of expertise as an indy advisor to Nest Egg Guru.  He is a frequent contributor to academic and professional Journals and papers he co-authored on retirement income sustainability with co-founder Jack DeJong, Jr. won Outstanding Paper awards from the CFP Board of Standards and the International Foundation for Retirement Education (InFRE).

Nest Egg Guru was created to address a couple of the problems the founders noticed in other retirement planning apps, namely flawed designs and unrealistic model portfolios.

The company is an FPA Member Advantage Partner.  FPA members receive a discount of $100 (33% off) the regular annual subscription rate of $300.

You can sign up for a 14-day no-hassle, no obligation free trial here  or schedule a one-on-one demo from Nest Egg Guru’s Contact page.

 


CONTACT INFO
:

Nest Egg Guru
John H. (J.R.) Robinson, Co-Founder & CEO
https//.nesteggguru.com
Phone: 808-564-0690
Email: guru@NestEggGuru.com

There is also a contact form on their website.

 


INTERVIEW:

AdvisoryQuest: J.R., thank you for participating in this edition of the AQ Blog Interview.  Before we jump into some of the features and functions of Nest Egg Guru, what lead you to start Nest Egg Guru?   

Nest Egg Guru:  In 2008, I entered into a research collaboration with three professors from the University of Hawaii’s business school.  In writing these papers, it occurred to me that the simulation methodology we were applying and that was being employed in papers we were citing, would lend itself well to retirement planning software.  At the same time, I had been reading a number of articles questioning the effectiveness of the Monte Carlo simulation software that many practitioners (including me) were using with our clients.  Instead of approaching retirement planning by trying to estimate probabilities of future returns, in 2010, I approached one of my co-authors, Jack DeJong, about applying our conceptual framework to build an app that approached retirement planning from the perspective of stress testing.  Out of this conversation, Nest Egg Guru was hatched.


AdvisoryQuest: One of the points from our conversation that I mentioned in the intro was that Nest Egg Guru was created because you noticed a couple of issues with other financial planning apps, primarily flawed designs and unrealistic model portfolios.   Could you tell us about these flaws and how Nest Egg Guru addresses these issues?

Nest Egg Guru:  Certainly.  These issues fall into two categories – structural limitations and overly-optimistic assumptions.  One simple example of a structural problem is sample size.  Most Monte Carlo apps only run 250 to 1,000 sims.  However, as I learned from our academic paper-writing endeavors, these sample sizes are too small to effectively simulate down-market conditions.  For its part, Nest Egg Guru runs 5,000 sims in 5 seconds.

Another structural problem involves whether Monte Carlo simulations should even be applied to investment portfolios.  Per its name, Monte Carlo analysis can work very well when applied to estimating probabilities for activities, such as gaming, where the mean results and variability are statistically known and constant.  However, some researchers have questioned the applicability of this form of analysis in circumstances, such as investment returns, in which the outcomes are inherently unpredictable and the variables are dynamic.  In contrast to traditional Monte Carlo apps, there is absolutely nothing probabilistic about Nest Egg Guru.  We are not trying to predict anything.  All our software is intended to do is to give clients an idea of how their portfolios might hold up under adverse conditions.

In terms of over-optimism, one common problem in competing Monte Carlo apps involves the failure to fully account for both internal investment management expenses and external advisor fees.  As we all know, under estimating the impact of such expenses by as little as .5-1% per year over a 30 year retirement horizon can have a big impact on the results.

Perhaps more significantly, many competing apps do not fully account for the effect today’s historic low interest rates on bonds or portfolio values and sustainability.  As Wade Pfau recently noted, “A problem with Monte Carlo tools that is exacerbated today is that they can often paint an unrealistic picture of returns. For example, an average expected return for cash of 2% is unrealistic (since the return on cash today is closer to 0%). This carries important implications for sequence risk for retirees, because the order you incur returns has a significant impact on the potential success of a given strategy.”  Nest Egg Guru allows users to illustrate the full impact of expenses and also offers a unique way to account for the current low yield environment.


AdvisoryQuest: There are two videos that readers should watch highlighting what makes Nest Egg Guru unique among financial planning apps.

Watch What Sets Nest Egg Guru Apart- Part 1- What’s Under the Hood?

Watch What Sets Nest Egg Guru Apart- Part 2- Functionality: Can Your App Do This?

Video Part 1 talks about Nest Egg Guru using more realistic stress testing and a different sampling methodology than other financial planning tools.  Tell us about the methodology Nest Egg Guru uses for calculating retirement projections?

Nest Egg Guru:  Most Monte Carlo retirement apps require the programmer to make assumptions about expected rates of return and volatility for various asset classes.   This is a problem because neither of these variables remains constant over time.  If these assumptions are inaccurate, the sim results may be meaningless.  In contrast, the bootstrapping techniques employed in Nest Egg Guru obviate the need for internal return and volatility assumptions.  Instead, our simulations are produced from randomly sampling historical monthly index return data from 1970-2014 – the modern era of the markets.  This approach has been used in a number of influential academic papers on retirement income sustainability, and the sample period includes enough bear market periods to generate some pretty ugly return scenarios.

As I mentioned earlier, in applying this methodology, Nest Egg Guru approaches retirement planning from a different perspective than standard Monte Carlo apps.  Instead of projecting future values or “probabilities of success,” Nest Egg Guru’s results are intended to tangibly quantify the ability of the client’s portfolio to withstand adverse economic and investment conditions.

As I explain to advisors every day, Nest Egg Guru does not pretend to be crystal ball.  What we do very well, however, is answer one of the most important and troubling questions clients have – “If things go badly in the investment world, will I still be okay?”  We also make really easy for the advisor to show his or her clients how changing variables that are within their control may impact their results.


AdvisoryQuest: Video 2 talks about how other financial planning apps assume constant allocation with rebalancing in their analysis. Research has shown that this isn’t necessarily the best withdrawal strategy. Explain the research on this topic and how Nest Egg Guru’s approach is different (better)?

Nest Egg Guru:  I am glad you asked this question, because it is really a big deal.  The manner in which our clients manage their asset allocations throughout retirement can have a profound impact on portfolio sustainability.  As a matter of convention, every retirement planning app I have seen assumes in its results reporting that retirement portfolio withdrawals are made proportionally from each asset class and then rebalanced to maintain a constant allocation throughout retirement.

However, a number of research papers over the past decade have concluded that annual rebalancing in withdrawal portfolios is a decidedly inefficient investment strategy.   In particular, two that influenced our thinking are a 2007 Journal of Financial Planning paper by SUNY Professors John Spitzer and Sandeep Singh, entitled “Is Rebalancing a Portfolio During Retirement Necessary?”  and a 2013 JFP piece by Wade Pfau and Michael Kitces entitled, “Reducing Retirement Risk with a Rising Equity Glidepath.”  Both of these papers laid waste to the “old school” notion that portfolios should become less equity weighted in retirement.  They also challenged the more modern notion that retirement spending portfolios should be rebalanced each year.  Instead, both papers concluded that stock market sequence of returns risk could be mitigated and sustainability and withdrawal rates could be significantly enhanced by spending the cash and bond allocations first.

Nest Egg Guru is the first retirement software for advisors that illustrates this concept.  We do this by allowing the user clients to test four basic withdrawal strategies – spend stocks first, annual rebalancing, spend cash and bonds first, and a simple guardrail strategy that does not spend down stocks following negative return years.  The differences in the results from applying each of these strategies are dramatic and serve to clearly illustrate just how important the withdrawal strategy decision is.


AdvisoryQuest: Are there certain types of advisors (beliefs, etc.) that are a good fit for using Nest Egg Guru?

Nest Egg Guru: This question can be answered from two perspectives – model fit and advisor persona fit.   With respect to the former, in evaluating any retirement software, advisors should be keenly aware of the concept of model risk.   Simply put, if the portfolio models used to produce the simulation results bear little resemblance to the client’s real world portfolio, then the results may be useless in guiding planning decisions.  Conversely, the more closely the client’s real world portfolio resembles the model’s, the more applicable the results are likely to be.  The best fit for Nest Egg Guru are probably advisors whose clients invest in index funds (e.g. Vanguard, DFA, etc.) for the equity portions of their portfolios and individual intermediate term bonds and/or CDs for the fixed income portion of the portfolio.

In terms of advisor personas, Nest Egg Guru tends to appeal to advisors who value Nest Egg Guru’s intuitive, advisor/client-friendly design and clear, easy-to-understand results reporting.  We find advisors increasingly eschew complex software that generates long, jargon-filled reports that their clients will never read or understand.  We are also finding that Nest Egg Guru’s lead generation functionality is appealing to many advisors.

Our challenge is in winning over the more analytical advisor types who, in my view, misperceive that app complexity is correlated to reliability.  We sometimes find that advisors in this camp mistake our intuitive user experience with simplicity.  As discussed, Nest Egg Guru sports a powerful engine under the hood and has important and unique functionality.


AdvisoryQuest:  Another feature for advisors is to use Nest Egg Guru as a lead generation tool by white-labeling the retirement calculators on their website.  Tell us about how an advisor can utilize this feature and how this can help generate leads?

Nest Egg Guru:   Nest Egg Guru’s lead generation tool was recently added in response to advisor demand.  It is a feature that may be turned on or off at any time.  Nest Egg Guru was designed to be a completely white-labeled value-added service that can be built directly into the advisor’s website.  There is no login or password required and no private client information is captured by or stored on the app.  When the lead gen tool is turned off, any visitor to the advisor’s website may run Nest Egg Guru’s Retirement Savings and Spending calculators as much as they wish.  In fact, the app was designed to be intuitive enough for advisors to use with clients in their office and for clients to use on their own.

When the lead gen tool is turned on, the first time a visitor to the advisor’s website runs a simulation, he is required to enter his name and email address in order to receive the results report as a PDF file via email.  The report features the advisor’s profile, logo, and contact info on the cover page, and the email message informs the user that Nest Egg Guru is smart enough to recognize that he has visited before, so he will not be prompted to enter his name and email address again if he wishes to run additional scenarios.  When a new user runs Nest Egg Guru for the first time, the advisor receives an email notification that a new lead has been generated and provides the name and email address.

It is worth mentioning that some advisors have asked why the lead gen tool does not also capture the prospect’s phone number.   The reason is that consumers are wary of telephone solicitations and are dramatically less likely to use free applications if they are required to provide a phone number as currency.  The development of an effective lead gen tool is a surprisingly sophisticated undertaking and we were fortunate to receive expert guidance along the way.  A key to a great lead gen tool is to make it non-intrusive and enticing for prospects while still providing actionable contact info for the advisor.


AdvisoryQuest:  The cost of Nest Egg Guru is $30/mo or $300/yr. What is the best way for advisors to contact NestEggGuru for a demo?   The website says “Try for Free.”  Do users get access to the full-version to test?  Is there a certain length of time for the free trial?

Nest Egg Guru: We have just upgraded Nest Egg Guru’s free trial system to allow advisors to get the full subscriber experience for 14 days.  Under this model, advisors can build and use their own fully white-labeled subscription with unlimited use of both calculators during the trial period.  The subscription process is intuitive and is not time consuming.

Importantly, the free trial does NOT require the user to enter any credit card or other payment information.  At the end of the 14 days, users will be asked to become paying subscribers.  If they elect not to subscribe the account will remain open indefinitely, but the calculators will be frozen.

The regular retail subscription price is just $300/year (or $30/month).  However, FPA members may contact us for a promo code that entitles them to $100 off the first year subscription price.   Non-FPA members may receive a similar discount through agreements we have made with a number of leading FA web-design firms.  FAs may contact us to see if their web-design firm has a vendor-partner agreement with Nest Egg Guru.


AdvisoryQuest: Thank you for telling us about Nest Egg Guru J.R. Is there anything else you would like to mention?

Nest Egg Guru:  The only other item I would like to mention is that we really are an advisor-friendly shop.  Because I have operated in the independent financial advisor space for so long, Nest Egg Guru’s design is attuned to advisor interests and preferences.  We are also happy to talk shop and/or provide one-on-one demos any time.

Thank you so much for this opportunity.  On behalf of the entire Nest Egg Guru team, we really appreciate the exposure.

 

Readers: AQ blog interviews are only intended to provide a brief summary of the product to introduce you to a company’s offering.  Please contact Nest Egg Guru to get a more in-depth demo of their product.

Thanks for reading.  If you have another products or services you would like me to highlight, please contact me at reid@advisoryquest.com.

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