A breakthrough that Challenger has discovered with advice practices giving retirement advice is thinking beyond just knowing the client circumstances and acutely understanding the unique challenges they might be exposed to.
In a keynote presentation, Challenger head of technical Andrew Lowe told the Professional Planner Licensee Summit this is a unique challenge with providing retirement advice in particular as well as the client value proposition offered by practices.
“If I was to start with the most common response to this particular proposition, it’s ‘we seek to understand our clients’ and it frequently stops at that point,” Lowe said.
“That’s a fantastic starting point, but it’s a terrible stopping point for that particular analysis.”
Lowe said this approach needs to involve more than understanding the client clearly by not only building advice that suits the particular client, but also understand the risks they are uniquely exposed to and build strategies around that so they can comfortably spend through to retirement.
“These are some of the principles that come up in those conversations,” Lowe said.
“Practices that have actually taken it away and done something with it, gone away and built something they stand by in their retirement advice philosophy.
“What that does in the experience I’ve had to date is make the delivery of advice in a difficult environment more efficient than it is today for those practices – when they’ve given pre-consideration to these sorts of ideas. This starts to become a really interesting element.”
Lowe said one of the features of retirement advice being so hard is that much of it is not only just one-to-one, but rather one-to-many.
“But it’s an individually tailored proposition for every client that comes through the door,” Lowe said.
“Some of it starts earlier than it needs to in a whole lot of cases. If I was to ask an adviser about their approach to explaining longevity or planning for longevity, I’ll get a broad range of answers and I’ll get some advisers starting to think about it on the spot.
“Then I’ll have other advisers that simply say ‘we use planning to age 100’ they’ve given it pre-consideration.”
Lowe said these advisers know the risks of clients living a long time in retirement and aren’t going to spent significant amounts of time doing “deep dives” into individual longevity assessments for clients.
“[The advisers] know that as a general rule, plan to age 100 is going to get a whole lot of clients out of whole lot of trouble,” Lowe said.
But there are still some other challenges advisers are being faced with, including modelling and evidencing the benefits of the strategies they apply to their individual clients.
“It’s hard to use the technology that advisers have today to answer a question as simple as how much can a client safely spend through the course of their retirement without running a whole lot of numbers,” Lowe said.
“There’s no particular tool that I can think of that simply answers for advisers what is a very common question: how much can I spend?”
Licensees also play an important role in setting up guidelines and frameworks that can significantly help advisers.
“These aren’t meant to be prescriptive, [but] these aren’t cookie cutter,” Lowe said. “This is simply doing some of the work for your advisers such that they don’t need to start from scratch every time.”
For super funds, Lowe said they’re reliant on advisers to help with the implementation of better retirement outcomes for members.
“Why are super funds building products? The retirement income covenant requires them to balance what are sometimes three competing objectives: maximise income in retirement, protect against the risks that their members face in retirement and effectively provide access to capital through a client’s retirement,” Lowe said.
“That’s a difficult thing to do with an account-based pension only. It’s possible but more difficult than if you’ve got extra tools in a super funds kit bag.”
Lowe said lifetime income streams will be the most common route, which involve a partial allocation into a longevity product – but noted it’s not as simple as “build it and your clients will move to it”.
“There are significant challenges getting members to retirement products, whether it be an account based pension or a combination of retirement income streams,” Lowe said.
“Super funds are challenged by that and are predominately relying on comprehensive advice today – whether that be within their own licence or one of your licences in this particular space so that’s the dominant way getting members to retirement as well.”
