Produced in partnership with North.
Walk into any luxury retirement village or over 55s residential lifestyle resort and the scene is not too dissimilar to the waiting room of most financial planning firms in Australia.
Since the 1990s, coinciding with the introduction of compulsory superannuation, the business model of most advice businesses has been to target retirees and pre-retirees because they generally have more assets, more complexity and a higher capacity to pay fees.
As a result, advisers have become experts at superannuation and retirement planning.
This deep specialisation has led to a profound understanding that retirement is a journey not a specific date in time. Furthermore, strategic asset allocation alone isn’t enough to secure optimal retirement outcomes.
While it is critically important that a client’s investment mix adjusts over time to reflect their age, time horizon and evolving goals, priorities and risk tolerance, asset allocation is just part of superannuation and retirement income puzzle.
This revelation has led to greater product innovation in recent years, underpinned by regulatory change, David Hutchison, general manager of managed portfolios and investments at AMP, tells Professional Planner.
“In the past, there was a belief that asset allocation would get you there, which is part of the reason why solutions like lifetime annuities haven’t historically taken off, but there is a greater understanding that achieving a comfortable retirement isn’t one dimensional,” he says.
“Some still think that the old model isn’t broken, particularly those that focus on affluent, high net worth investors, and that has held back innovation to a degree but regulatory change and the increasing number of younger people seeking advice is accelerating change.”
Hutchison cites the Retirement Income Covenant and the Quality of Advice Review as major catalysts for positive change. Both highlight the value and importance of advice to support Australians to understand their financial position, make informed financial decisions, and stay on course to achieve a comfortable, confident retirement.
QAR, in particular, highlights the burgeoning need for advice among younger Australians.
The retirement journey, Hutchison says, doesn’t start at preservation age. It starts on the day a person gets their first job and enters the workforce.
This mindset shift is dismantling the idea of retirement as binary, which is transforming the advice and wealth management sector.
Clients don’t need to be pigeonholed as wealth accumulators, pre-retirees or retirees. There is a blurring of the lines, meaning that strategies, structures and solutions may be appropriate for more than one cohort.
“To close the advice gap and support people through every stage in life, the industry must think about things as, through to retirement rather than at retirement,” Hutchison says.
“When you think about things through that lens, there are more levers that you can pull.
“If you win a client at age 55, you’ve got a limited number of levers whereas if you get a client at age 40 and set things up right, you may not need to see them every year. Not every new client is going to be a traditional advice client. That’s just not going to be the right model for everyone.”
One potential lever is Innovative Retirement Income Streams (IRIS), which provide a flexible, guaranteed income stream and serve as an alternative to account-based pensions and lifetime annuities.
Other levers include annuities and investment bonds.
Another benefit of the through to retirement approach is that it eliminates the need to change a client’s financial strategy the moment they turn 65 or retire. After spending over 40 years in the workforce, retirement is a big enough adjustment without the added pressure of changing tack overnight, Hutchison says.
“It’s no longer about accumulation or retirement, with retirement being the trigger to do something different,” he says.
“Traditionally, it was about accumulating assets and then maintaining assets in retirement to avoid overspending and running out of money but now there’s a genuine focus on helping people navigate Australia’s complex super, tax and social security system in order to maximise the amount they spend in retirement.
“It’s about the continuation of advice all the way through to ensure people achieve their retirement goals and feel confident to spend, which actually requires the industry to do things differently in order to drive better outcomes.”
To assist advisers to meet the evolving needs of clients from accumulation through to retirement, AMP is focused on enhancing its wrap platform, North, including bolstered the platform’s client servicing, investment administration, and managed portfolios capabilities.
“We’re working out the best way to support the different strategies and capabilities being utilised by advisers, even if some solutions can’t technically be on the platform, they can be next to or adjacent so advisers can easily use new solutions to implement their advice although they’re treated separately from a tax and social security perspective,” he says.
In September, North launched a slimmed down investment menu, called Grow, targeted at wealth accumulators with relatively simple advice needs.
As its name suggests, Grow is designed to enable advice businesses to service clients through every stage of life. With one account, investors can access a range of simple, low-cost investment options, transition to North’s full menu called Choice, and seamlessly move from super to pension phase.
A key goal of Grow is to get people planning for retirement a lot earlier.
“Across the wealth management industry, there’s recognition that focusing on younger clients isn’t just smart business sense, it’s also the right thing to do,” Hutchison says.
“They may not need comprehensive, ongoing advice but they will need strategic advice to get them started and sporadic guidance, as their circumstances change.
“This also makes sense from a business perspective because advisers can shift the dynamics of their clientbase by increasing client numbers and reducing the average client age. By catering to the growing advice needs of younger people, they can increase the value of their business over time.”
At the other end of the scale, Hutchison points out that people at the back end of retirement need greater support too on matters including aged care, estate planning and the intergenerational transfer of wealth.
With increasing life expectancy rates, taking a through to retirement approach doesn’t end at age 65.
“We’re still early in this shift so the focus of many advisers is still on retirement and the years leading up to retirement, which is typically when people need the most reassurance and guidance, but as a person goes deeper and deeper into retirement, their needs change too,” Hutchison says.
