Fragmented industries and a thinning financial advisory cohort will leave more Australians struggling during their retirement years unless government, the superannuation industry and advisers can join forces.
Advice business owners and executives including client facing advisers, product and portfolio researchers as well as licensee heads and retirement product experts came together in February for a roundtable hosted by Professional Planner in partnership with Allianz Retire + to discuss how best to approach the current retirement gaps and evolve the industry from predominantly focusing on the accumulation phase to homing in on drawdown strategies and better retirement outcomes.
As low interest rates keep fixed income yields constrained, financial advisers must develop new ways to help retirees sustain an income after they finish working, and for a longer period of time than ever before.
“As it stands, people don’t think about consuming capital as income,” David Gibson, financial adviser at Priority Advisory Group said.
“They’re scared to do it because they don’t want to run out of money, but the flipside is they give up their flexibility and they spend their retirement worried, rather than with peace of mind.”
Gibson said his experience with everyday clients shows the need to reframe the conversation in a way that allows for flexibility and focuses on education.
“We need to remind people superannuation is for consumption, it’s okay to eat your capital,” Gibson said.
Caitriona Wortley, head of distribution at Allianz Retire+ said advisers are in the prime position to help shift to a drawdown mindset.
“The main fact that helps people actually draw down on their super is confidence and advisers are key in helping deliver that confidence. They are in the position to help reframe retirement.”
Wortley said: “How are we going to help people consume that income? Those conversations need to happen now.”
But the panel agreed there aren’t enough mechanisms to help people prepare to actually live during retirement or prepare for retirement at an earlier junction, and the financial advice industry is suffering from a dearth of trust.
The need for advice
“I can’t get my head around the fact that a financial planner isn’t tax deductible,” Todd Clifford, general manager at Viridian Select said.
“That would encourage a larger number of people to consider it, it would give the industry more credibility and it would say to society, ‘it’s okay to see someone who will help work out a retirement strategy so you can get ready and enjoy your life’.”
The traditional strategies for retirement aren’t going to cut it in a modern world and advisers need to build trust to enable execution of new strategies.
“These days there isn’t just one strategy for retirement,” Clifford said. “It’ll be a stack of different solutions that all behave differently, and that’s what will give clients the flexibility to achieve their outcome.”
But a profound problem for the industry is that many Australians feeling financial advice is out of reach.
“Don’t put a ceiling on who should get advice and who shouldn’t get advice,” he added. “Those people who haven’t got lots of money often have more at stake than those who have.”
“So many consumers see advice as unaffordable, inaccessible or they see the financial adviser as someone who will take advantage of them,” Clifford said.
Despite statistics that show the 15 to 17 per cent of people who have a financial adviser clearly benefit from that, and openly espouse the security it provides, the industry’s reputation remains damaged.
And while Australia’s superannuation industry has embraced the accumulation phase, Clifford said there is a need for advisers to begin specialising in retirement itself.
“The vast majority of financial advisers seem ready to get back to business after two years of just surviving,” Clifford said.
Focus on retirement
“What we now need are masterclasses for advisers who can specialise in retirement advice, around capital adequacy amounts, longevity and risk,” Clifford said he believed.
He said government and industry should line up behind this kind of education.
Veronica Klaus, head of investment consulting at Lonsec, outlined the problems at different levels of retirement.
Firstly, the biggest issue at the highest level was not enough people seeking advice early.
“They’re not getting what it’s about when they’re young, or how important it is to set up a plan and seek advice,” she said.
Secondly, the divestments out of the big banks and new government regulations mean there are fewer and fewer advisers.
“Just when people need advisers the most, the cost of financial advice is going up,” Klaus said.
“And we know that once people get advice, there is a huge amount of data that shows you were more successful in retirement than those who didn’t.”
And lastly, Klaus said divergence within the industry will cripple any progress.
“Institutions and super funds are working towards one thing, while financial advisers are working towards something else,” she said.
“Unless we work together, towards the same thing, we won’t be able to serve retirees the way they need us.”
Klaus said managing retirees is more than just numbers in a portfolio, and it’s more than just tools, modelling and available products.
“It’s understanding how different solutions work together sometimes,” she said. “We’ve always been more holistically focused on what clients need rather than numbers in an investment portfolio.”
She added: “I don’t think there’s ever going to be one product that’ll fix retirement, so if you’re working on that give it up.
“We need to work together to bring all these elements together to create the ideal portfolios for your client.”
Focus on what matters
Yvonne Chu, head of technical services at Australian Unity, said overcompliance has fatigued the advice industry.
With regulatory changes and the Royal Commission, the compliance burden means a lot of adviser energy is taken away from the client.
“When they’re dealing with overcompliance, advisers are far better off leaning towards conservative recommendations because that will preserve capital,” Chu said.
“And they’re less likely to get complaints from clients for less income, but they will also not offer clients the whole range of possible outcomes.”
Chu went on to describe the protective role financial advisers play in some retirees’ lives.
“Ultimately we talk about creating value, but we also see a lot of elder abuse and a financial adviser can protect people from various scams and even their own family in some cases,” she said.
“But the problem is you can’t put a dollar amount on that.”
The advent of separately managed accounts and other technologies have pushed the advice industry forward, illustrating their power during the unexpected Covid19 pandemic.
“The pandemic meant we could make quick tweaks and adjustments for people’s portfolios,” Chu said.
“We had a lot of happy clients who expected things to be a lot worse.”
Greg Hansen, senior business strategy manager at Hub24, said technology needs to complement education and help clients understand the trade-offs and decisions they need to make in retirement.
“People don’t always know how much they can or want to spend,” Hansen said. “We need to understand how much money they have, the value of their house, their super, savings, and then we can understand the objectives.”
Hansen said financial advisers need to offer clients context so they can meet their objectives.
“Tools that really add value are the ones that help the client understand the framework and the decisions and the trade-offs needed in order to execute the plan,” he said.
“Once that’s decided, the products aren’t the hard part. Instead, it always needs to come back to how we can reduce time and stress, and help people understand their own decisions.”
Bringing it all together
Peter Ornsby, chief executive at RI Advice said the gap in education and knowledge is too broad for people entering retirement .
“Every component of the value chain, from trade press to regulators to the advice businesses need to come together to help with the education side of things so people can make smarter decisions for their retirement,” he said.
“As it stands there doesn’t seem to be a forum that brings it all together. It would be a very powerful thing if you had government, regulators and industry players all going out there with a strong, aggressive education message.”
Matt Rady, chief executive at Allianz Retire+ said advisers need to adapt their language to help clients understand the process.
“80 per cent of adult Australians gamble and understand the probability and associated risks of rolling a dice or betting on a horse” Rady said.
“But financial advice is completely alien, even though retirement is all about probability which is a term they’re already familiar with.”
Instead, the industry needs to outline the retirement risks in ways people can understand, and the types of investment they’ll need.
“It’s profoundly different in retirement than in the accumulation phase. We should be framing goals-based, probability-orientated outcomes for retirees.” he said.
David Bell, executive director of The Conexus Institute, said the industry, exacerbated by recent government regulation, puts little value on certainty for clients.
“Everything comes back to returns, and there’s zero value on reducing risk or delivering certainty,” Bell said.
Pointing to the government’s proposed superannuation performance test, Bell said clients who need certainty more than returns in retirement are not being serviced.
“If we don’t start placing value on those things like certainty and reducing risk, and showing that we can meet those outcomes, then we’ll have a bigger problem because they are really important in retirement.
Lonsec’s Klaus agreed, adding: “Those who were focused on the end number, and on performance returns, they’re the ones who called us every day saying this fund manager is underperforming, because their entire solution was about returns.”
“We can’t underestimate how important having a clearly defined philosophy and process is, for those in the accumulation phase and the retirement phase, because all those products that populate the strategy. They all become levers that can help you achieve outcomes for your clients, and give you flexibility when things are difficult,” she said.
‘Advisers are ready for this’
“Retirement advice hasn’t changed dramatically in twenty years,” Caitriona Wortley, head of distribution at Allianz Retire+ said.
Wortley pointed out that almost everyone has thought about the investment framework for the accumulation phase and accounted for accumulation risk, but when it comes to the prospect of running out of money, retirees are on their own.
“We cannot stay wedded to an accumulation mindset, we need to be thinking about retirement,” she said.
“I do think advisers are ready for this, I think the reason it hasn’t happened before is they have had too much on their plates,” Viridian’s Clifford commented. He added that now is the time for licensees to help facilitate the movement.
“Licensee have been really busy with what’s been occurring over the last 12 to 18 months but I do think the time is now. I think licensees are now easy to both embrace technology and to listen to this conversation and make changes,” he said.
Licensees can support advisers by promoting retirement as a specialisation through education and technology adoption to support retirement outcomes.
“We need to make the advisers job easier in providing retirement advice,” Allianz Retire+’s Rady said.
“Advisers need the tools to be able to demonstrate outcomes to investors in a simplistic manner, that makes the advisers job easier,” Rady commented.
As soon as you have licensee that are able to provide a structure or framework to enable advisers to facilitate the retirement advice process, and that’s when you start to get much greater take up,” he said.