An estimated 40 per cent of Australians will reach retirement carrying debt, typically a mortgage, and often quite a hefty one. For them, the issue of financial advice at retirement is made additionally complex and probably exceeds the capacity of fully digital advice solutions alone to resolve.
The Professional Planner Advice Policy Summit heard that the issue of how to get appropriate advice, guidance and information to many more people remains stubbornly difficult to resolve, particularly in the absence of progress on the Delivering Better Financial Outcomes reforms.
Face-to-face interactions and tailored advice are fundamental to closing the retirement advice gap, and any solution must both increase the supply of human advisers and support them with smart technology to be more productive.
Colonial First State Superannuation CEO Kelly Power questioned whether a client or member can move into decumulation without talking about paying off debt or downsizing.
“And who wants to have that conversation with a bot or with an algorithm? It’s bigger than just your super; you have to think about so many things, and there’s whole checklist of things that you need to consider.”
Advice is deeply personal, especially at retirement, even though super funds are being encouraged to think about retiring members as cohorts – with sufficiently similar characteristics, needs and goals – to be offered broadly the same advice.
“I don’t think people want to be told that they’re the same as someone else, or told that they’re in a cohort, or put into a particular box,” Power said.
“You can have [advice] propositions that suit that, and you can have pathways that help people, but I don’t want to be told that the person that’s the same age as me, that lives two streets away from me, has the exact same needs.”
Power said this illustrates why one of the most pressing issues facing the advice industry is simply the supply of human advisers, and a growing need to employ technology to support advisers to be more productive.
“I’m talking to our planners [and] something like 60 per cent of their time is spent on compliance and on administration,” she said.
“There is a responsibility on us, big providers like us that have capital, to bring those tools to market in a safe way, bring the AI tools to market in a really safe way. That’s going to make the advice production process so much more efficient. And instead of 100 clients, there can be 300 clients serviced at scale, still in a personal way.”
Digital versus human solutions
No single part of the advice ecosystem on its own can solve the problem of how to “get advice into the hands of 22 million adults as and when they need it”, Terry Donohoe, managing director and CEO of Ignition Advice, said.
“It needs to be solved by all and I think controversially, it needs the banks here as well to really solve for that scale,” he said. It was important, Donohoe said, to recognise the constraints of digital advice and the fundamental irreplaceability of humans in the process.
“When individuals are getting to the point of retirement, particularly drawdown and things like that, they’re making decisions that will impact them for 30 to 40 years. They need a human in the mix. Today, we’re way long off that trust being totally provided by technology or other solutions in that way.
“That can’t be automated entirely. At the moment, it needs phenomenal planners in there. The inflection point into drawdown is the most complex point.”
Hybrid advice models – humans supported by technology – are finding more success, Donohoe said.
“Self-service is important; it has its place. When you look at the global penetration of that, the rates are pretty low. At the moment, the key one is hybrid. We’re seeing hybrid outstrip advisers and self-service anywhere it’s deployed in the right way.”
Donohoe said hybrid advice models “critically need the advisor at those important decision moments, but it has a member or consumers doing a lot of the work up-front”.
“Success rates when we look at robo [advice], self-service [is] about eight or 10 per cent globally.
“Hybrid [digital advice] actually shows about 85 to 90 per cent and because of the behavioural characteristics of the engagement for the consumer, they’ve bought into it.”
Humans are critical in the advice process because retirement is as much an emotional issue as it is a financial one. AustralianSuper head of guidance and advice Ross Ackland said that “oftentimes when it comes to retirement advice, it’s more about the confidence than it is about the money”.
“That’s a really powerful thing, which sort of makes the advice profession special and a bit different to other professions such as accounting and legal.”
But as advice is currently structured, it’s almost become a luxury service – accessible and affordable to the top 10 per cent of income-earners.
“We do talk a little bit about the ‘missing middle’, in that sense. [But if] it’s for the top 10 per cent, if that’s true, it’s more than the middle. It’s the rest.”
A super fund can’t solve the advice-gap issue through a single channel or approach. Ackland said AustralianSuper has multiple channels, ranging from an education, though simple or intrafund advice, to inhouse comprehensive advice, and advice provided to members by external advisers.
FORO
Challenger head of retirement distribution Adrian Aardoom said the fear of running out of money that people are presumed to have when they retire has been overstated. Challenger’s Retirement Happiness Index research shows advice that addresses the issue of lifetime income more or less puts that to bed.
“Of those who did have lifetime income, they reported greater levels of happiness,” Aardoom said.
“Those who had lifetime income, they spent more over the retirement life cycle. They had greater levels of confidence to spend, greater levels of peace of mind. And contrary to popular belief, they actually had higher estate values upon death as well.”
But too often the issue of lifetime income isn’t even raised by an adviser, and that demonstrates a shortcoming in the systems and software that supports them.
What’s preventing lifetime income from even entering the adviser’s consideration set.
“It doesn’t surface lifetime income as a strategy,” Aardoom said. “Forget Challenger for a second, lifetime income as a strategy isn’t surfaced. It’s not part of the consideration set today. [and that] doesn’t accurately represent the hurdles that modern Australian retirees face today.”
Aardoom said Challenger sold about $3 billion of retail annuities in its most recent full financial year, and “I’m not trying to impress anyone – indeed, I’m not, with that number, it should be far greater, given the size of the pension pie”.
“Advisers get the idea that lifetime income can improve total portfolio outcomes for certain cohorts, for a larger amount of retirees than are purchasing it today,” he said.
But, “we understand that it’s very difficult for advisers to deploy our strategy at scale across 120 or 300 or 400 clients, which is where we need to get to”.
“We’re undertaking the largest investment in technology in our company’s history that goes live through the month of end of April, will go live in May,” Aardoom said.
“That will materially change the user experience, the connectivity and the accessibility of the lifetime incomes that we offer.”
