Nathan and Richard-

Your focus is on mean-variance optimization, which is one of the three MPT pillars. Based on your comments, it appears you have given up on the other two pillars, CAPM and EMH.

I agree that keeping clients in their seats is a critical challenge faced by advisers. I just don't think the efficient frontier is of any help in this regard. Using the bucket model for making asset allocation decisions leads to increased client control, confidence, and comfort. It is irrelevant whether or not the resulting portfolio lies on the efficient frontier.

The advantage of the bucket model is that it reassures clients that liquidity/emergency and income needs have been met. This means the final bucket can be invested for long-term growth.

The growth bucket is where keeping clients in their seats is most challenging. The goal is to maximize long horizon wealth by investing in the highest expected return market, most likely the stock market. Emotional coaching by the adviser plays a critical role by helping clients avoid costly investment errors.

But of course there is only so much that can be done to allay client fears. When making the requested emotion-return portfolio decisions, standard deviation is a poor metric to use. At my firm Athena, when asked by our adviser clients to build less than optimal growth portfolios, we use max draw down as our emotion metric. It is not the ups but the downs that strike fear in the heart of clients. We take pains to frame the resulting asset allocation decisions as emotion-return rather than a risk-return trade-offs.

For 10 years now, we at Athena have used objective behavioral measures and methodologies for successfully managing fund, stock, and tactical portfolios, as well as for client communications. I see no compelling reason to bring MPT back from the dead.