Financial planners don’t need to be told that a key part of their role is helping clients deal with surprises. For Brant Walton, a long-standing client of Adelaide-based Rise Standards chief executive Guy Thompson, the unexpected came via a workplace accident that brought retirement forward.
Walton was initially referred to Thompson back in 2008 to put some financial accounts in order following the death of Walton’s wife.
Like many Baby Boomers, Walton had precious little saved for his retirement beyond a modest $120,000 in compulsory superannuation. To make matters worse, he had developed a habit of frittering away much of his salary on lifestyle goodies like motorbikes and fast cars.
Thompson recommended Walton put the attractive salary he was earning to much better use. At age 53, he had years of earnings ahead of him before retirement.
After exploring several options with Thompson, Walton felt that a gearing strategy, plus some salary sacrificing to boost his super account, was the best road forward.
Based on Thompson’s recommendation, Walton borrowed $300,000 against the family home and invested it in a diversified basket of managed funds, offsetting the interest against his tax. But Walton recognised he could further accelerate his gearing and six months later – with the sharemarket going gangbusters – he took Thompson’s advice and borrowed an additional $100,000 to purchase a basket of yield-bearing, ASX-listed, large-cap stocks.
Walton’s renewed commitment to saving for retirement coincided with the start of the mining boom and for the next few years his gearing strategy performed extremely well. So much so that by the time he’d turned 60 in 2015, he was able self-fund his retirement and, having accumulated $750,000 in assets, did not have to rely on the age pension.
Change of plans
Had everything gone to plan, Walton would have retired at age 65 after another five years of work and, during that time, he would’ve established a transition-to-retirement plan. However, a work-related accident in 2014 put an abrupt end to Walton’s 36 years as an underground goldminer.
After two shoulder operations, Walton returned to work for eight months of light office duties. But when the company was unexpectedly sold, the new owner dispensed with his services.
Rather than trying to continue servicing his interest-only loan now that he was no longer working, Walton agreed with Thompson that it was time to roll over his investments into an allocated pension of about $4500 a month.
“This decision meant Brant could spend more time with his daughter and continue taking regular holidays without having to live beyond his means,” Thompson explains.
Given that he was neither covered by personal risk insurance – which would have paid out until he was 65 – nor entitled to sue his former employer for his shoulder injury, Walton decided to take legal action against the mining equipment manufacturer. It may take a while before there’s a result to this litigation but Thompson says it’s particularly pleasing to have got Walton in a financial position where his retirement lifestyle isn’t contingent on the outcome.
Advice has evolved with clients
Upon reflection, Thompson says the three stages of Walton’s retirement planning –managing his estate and reducing debt, creating wealth and focusing on a retirement date in a tax- and cost-effective manner – show the general direction of much of today’s advice.
“Unlike those mining halcyon years, when markets justified robust gearing strategies, investors are rightly taking fewer risks,” Thompson says. “While the family home is now seen as a principle investment going into retirement, there is also greater flexibility in retirement outcomes due to more options around super.”
While client needs remain fundamentally the same as ever, Thompson says lessons learned during the global financial crisis (GFC) and the uptake of digital financial tools – especially by Millennials – have made today’s clients more realistic about returns when they seek advice. He also attributes the much greater transparency clients now demand in advice to myriad efforts to improve financial literacy in recent years.
“If clients are paying us between $2000 and $3500, they want to be able to see where value within the advice lies,” Thompson says. “The more clued up clients are when they first approach us for advice, the greater the certainty around tax savings, consistency of returns and both capital and portfolio growth they’re likely to want.”
While clients’ primary concern pre-GFC was all about how big the return within a share portfolio would be, the focus today – especially among the Baby Boomers who dominate Rise Standards’ client base – is as much about income and capital preservation as it is about growth.
In years past, the more popular strategies in this regard included expensive and highly complex structured products offering capital guarantee or protection. Now, Thompson says, the focus is on cheaper, liquid hybrid solutions, which could include exchange-traded funds, listed investment companies, and other index funds, among other things. Even so, Thompson says clients’ need for advice remains firmly tied to key fundamentals such as age and stage of life.
More options, more control for clients
Unsurprisingly, since the GFC, he’s also witnessed much less borrowing against the family home to leverage investments outside of super than when sharemarkets were delivering much higher returns.
Since 2011, he’s had only one enquiry about using equity in the family home to buy shares. “People still regard property as safer, even though it isn’t, due to economic downturns always affecting both asset classes,” Thompson says. “In fact, it’s riskier with property, due to minimal diversification and liquidity, and high management costs.”
With the family home playing a much greater part in the overall retirement picture these days, Thompson says, more clients now recognise that it’s a valuable asset and they shouldn’t tamper with it. As a result, he’s witnessing a quantum shift in the thinking around plans to retire.
“A growing realisation that they don’t have enough money to retire on is forcing people to extend their working life indefinitely,” Thompson says. “Instead of having concrete plans to retire on a certain date, we’re finding what Baby Boomers are looking for is options, especially those struggling to identify their goals beyond retirement.”
Some of the decisions clients need help making include whether both partners should continue to work, one retire early or should both wind back their working hours. Then there are small business owners, Thompson adds, who spend more time exploring exit strategies.
“All clients are looking for more efficient ways to manage their financial affairs,” he says.
As a result, Rise Standards is constantly improving its robo-advice applications – which feed data from various platforms – to provide a snapshot of a client’s net position plus access to online financial education tools, all in one place. Thompson says these online applications are ideal for a growing number of investors who want varying levels of control over their investments without the added responsibilities and compliance duties associated with running their own self-managed super fund.
Client needs are projected client needs over shorter time horizons, Thompson says, reflecting the growing need for people to remain in their job or business longer and the greater flexibility necessary to respond to market changes or unexpected events.
While there’s always going to be a need for advisers to get access to product, he says helping clients become more knowledgeable through online tools should lead to better and more efficient client engagement.
