A seismic shift in the nature of advice provided over the past decade is as much about the metamorphosis experienced by financial planners as it is a reflection of evolving client lifestyle requirements. That’s the overarching conclusion of Wayne Leggett, director of Perth-based Paramount Financial Solutions, as he reflects on key drivers of changing client advice needs and what those clients will expect from advice in the future.
Regulatory reforms, especially on the transition to a fee-for-service model, may have made advice less product-driven and transactional. However, Leggett attributes the heightened appetite for advice to a greater awareness of the knowledge gap that investors now want to bridge. “With financial markets becoming increasingly complicated, there’s value being placed in underlying advice and a greater willingness to pay for it,” he says.
What’s driving the need to bridge knowledge gaps, he says, is changing community thinking on longevity and less reliance on the age pension as a retirement solution.
In the past two decades, he’s witnessed conversations with clients move from “Help me get my affairs in order so I can get some savings to supplement my age pension”, to “Get me into a position where I don’t have to think about Centrelink”. He says the traditional she’ll-be-right approach to retirement planning, previously hard-wired into the Australian consciousness, is waning fast.
Post-retirement and cash flow solutions
Rather than being the end game, he says clients now see any entitlement to age pension as icing on the cake. “Becoming a self-funded retiree is now very much part of the Australian psyche,” he says. “Instead of thinking about three score years and 10, investors are more aware of their need to plan for a longer life and, hence, retirement.”
Unsurprisingly, Leggett has witnessed a greater focus on post-retirement solutions and, in the absence of off-the-shelf products, that’s meant creating solutions with what’s currently on offer.
What’s likely be in that basket, he says, is a packaged hybrid of products, including annuities, account-based pensions and elements outside super. “When it comes to the post-retirement market,” he says, “in some sense we’ve moved backwards from when there were permanent life insurance and whole-of-life policies.”
But unlike the situation in years past, when advice was squarely focused on managing assets, Leggett says clients now look to advisers to accelerate wealth accumulation. That’s especially true for gen Ys and millennials with good incomes but few assets, who crave advice on cash flow management and reducing discretionary spending. “While younger clients are invariably better at sourcing knowledge online, they’re often more interested in big picture outcomes and happy to delegate the finer detail to us,” he says.
Value in objectivity
It’s evident to Leggett that what people want from advisers, beyond help in delivering on their goals, is the objectivity they bring to the table. Given that Australia’s advice industry had its origins in the life insurance business, he says many baby boomers remain cynical about advisers acting in their clients’ best interests.
“Recent provisions that ensure advisers act in a client’s best interests have left many people scratching their heads and asking, ‘what were you doing before?’” he says. “Having recognised the need to be informed, younger investors, especially millennials, automatically expect to see value in the advice.”
At the other end of the spectrum, exponential growth in the aged care sector has mirrored the increase in the number of people living longer. As a result, Leggett says baby boomers are increasingly looking for advice on myriad complex retirement options for their parents, and thinking about how it affects them as future beneficiaries.
“Having witnessed first-hand the challenges associated with longevity for a generation that wasn’t groomed to deal with it,” he says, “people are beginning to realise just how outdated traditional notions of retirement are, with many people choosing to remain working indefinitely.”
Despite all the regulatory reform imposed on the advice industry in recent years, what’s often overlooked, he says, is the role superannuation and Centrelink entitlements continue to play as part of the best post-retirement solution. While younger investors are being groomed to totally self-fund their future retirement, for many older Australians – who haven’t benefited from a lifetime of compulsory super – Leggett says it’s a much less certain outcome.
“While well-heeled baby boomers may represent a gravy train for the advice sector, it’s often forgotten that for the vast majority the best solutions still revolve around super with an age pension top-up,” he says. “This outcome is by no means an admission of failure.”
The case study
Doug and Lyn Pendlebury have been clients of Leggett’s for 35 years. Doug’s first dealings with Leggett were as a 20-something apprentice working on Perth’s railways. “In those early years, when we were tight for cash, the focus was more on insurance than superannuation,” Doug says.
By the time the Pendleburys had bought a family home in the late 1980s, they were raising two kids and, having left the railways for a job at the casino, Doug’s income had improved substantially.
Having forged an instant rapport, galvanised by a mutual love for the West Coast Eagles, Doug and Lyn followed Leggett to Paramount Financial Solutions which he established in 1992. While the couple shares a true friendship with Leggett, he’s constantly reminding them of the need to separate this from their formal fee-paying client-adviser relationship.
“Some years earlier, while Doug and Lyn were still working, we established that they planned to retire at or before age 65 on an annual income of around $50,000, and basically worked back from there,” Leggett says. “Given that they didn’t have too much in the way of investments, we agreed that some fairly aggressive salary sacrificing – together with maximising Centrelink entitlements – would go a long way to getting them close to this target.”
Doug and Lyn retired in the past six months debt-free, and both have converted their super into tax-free account-based pensions. In combination with Centrelink entitlements, which Paramount helped them qualify for, their income affords them a comfortable lifestyle. They have no plans to become jetsetters but there’s sufficient income for them to fulfil their dream of spending six months of the year travelling the country as grey nomads in the comfort of their caravan.
Admittedly, there’s nothing about Doug and Lyn’s retirement strategy that shoots the lights out. But by sticking to a simple yet effective plan, Leggett says they’ve been able to deliver on key retirement goals without taking unnecessary risk.
“There are a lot of couples like Doug and Lyn who, having made a few mistakes along the way, are looking for tried and tested solutions to make a material difference to their retirement,” Leggett says. “More often than not, it’s those last years before retirement that can make all the difference to retirement outcomes.”
Leggett has also helped Doug and Lyn transfer the family home to their daughter and subsequently move into the granny flat they built on the rear of the property. This is an arrangement that suits both couples, with grandparents on the doorstep to take care of grandkids when needed and a daughter who’ll be there for them in their later years.
“This is a much better, cheaper and more tax-effective solution for all than contemplating aged care facilities,” Doug says. “Wayne and the team at Paramount have helped us work through these sorts of options and while we do trust them to bring the right solutions to the table, we’re always left to make the final decision.”