One philosophy but many models to solve the retirement advice challenge

This article was sponsored by MLC.

Advisers must develop a clear and coherent “retirement income philosophy” to ensure all clients across a practice receive a consistent standard of advice as they move into retirement, but a Professional Planner roundtable, sponsored by MLC, has heard that a “one-philosophy” approach does not mean there should be only one advice model.

Financial advice is a critical element in ensuring as many Australians as possible retire with as much dignity as possible; but delivering consistently excellent advice within firms or across firms within a network can’t rely solely on individual advisers. It needs to be underpinned by a well thought-out philosophy, even if advisers are then left to bring their own skillsets and advice strategies to bear. And it needs the continued support of product providers and platforms to help advisers pull it all together.

Ashton Jones, director of retirement innovation at MLC, said the firm had spent the past year visiting advisers to understand how they were implementing retirement solutions, with around 3000 advisers taking part in education sessions. He said more than three million Australians with $1.2 trillion of superannuation would move into the retirement phase over the next decade – a rate of about one every two minutes – and Australians are living longer. 

He said MLC research shows that only about a third of Australians feel financially confident about retirement, a figure that doubled to between 63 and 64 per cent for those who were advised. Advisers do not necessarily need to build a whole new advice framework to offer effective retirement advice; small shifts to existing investment and insurance philosophies could deliver big improvements as retirement risks come into focus.

Zvi Teichtahl, chief executive of Priority Advisory Group, a Sydney practice with 13 advisers, said the firm struggled to apply a consistent approach across its advisers. About half the advice the business delivers is focused on retirement.

“Some of the things we struggle with across the number of advisers we have is just having that cohesive and consistent approach to retirement income planning,” Teichtahl said.  

The firm does goals-based and objectives-based advice, and uses buckets in its modelling, “but again, it’s hard to find a consistent and cohesive approach that we can apply across our whole group”.

Teichtahl, who still advises clients himself, said he was keen to understand how bucketing compared with income layering.

When businesses merge it can complicate the task of defining and applying a firm-wide philosophy. 

Doing things differently

Eureka Whittaker Macnaught general manager and adviser Ben Parnell said mergers had brought in new businesses all doing things differently. 

“It’s really just trying to work through with them, in terms of building a philosophy going forward, which is the right way forward for everyone, because we all need some consistency in approach,” he said.

Parnell said the common ground across the businesses was a bucketing strategy, with a lifetime income layer added for the right client, often as an age pension uplift rather than for guaranteed income. 

“It’s still pretty fluid at the moment in terms of working on the one right approach,” he said. “There’s just so much that change which is the right way to go.”

However, Parnell said, a consistent philosophy can help head-off the “awful conversation with the client if you set them up with a certain strategy or a product, and then a year or two years later, there’s the next best thing that we need to be shifting towards”.

Nathan Stanton, CEO of Bridges Financial Services which is owned by Insignia Financial along with MLC and has around 75 planners across around 20 offices and a client base weighted to pre-retirees and retirees in the mass affluent segment, said the firm spent a lot of time on investment philosophy but did not have a retirement advice philosophy, as such. 

“Most licensees have all the framework in place, they just don’t have it in one structured piece,” Stanton said.

His job has moved beyond compliance management, approved product lists and investment philosophy. 

“Now it’s around, how do we structure a retirement philosophy? How do we provide the appropriate modelling that advisers can use?” he said.

Stanton said the licensee wanted to give advisers as much flexibility as possible to express their own advice philosophies, “but within a framework”.

Entireti executive general manager of advice delivery Nick Hilton said scale ruled out a single mandated approach across the network’s roughly 1600 advisers, but guidance on a best approach was valued. 

“We have found it of value to provide guidance on the critical elements that they’re probably struggling with,” Hilton said, citing product comparisons, modelling and forecasting. 

Hilton expected that some elements of the group’s guidance could end up as “more prescribed positions, particularly around how advisers manage longevity risks”. 

Based on the work Entireti has done, a harder attribute to train was building confidence in younger advisers such as the confidence “to push back on a client when they were being resistant to the recommended strategies,” he said, citing the example of a client asking to move fully to cash at retirement. 

Evalesco CEO Jeff Thurecht said part of the difficulty was the language itself. “Part of the problem is the word ‘income’,” Thurecht said. 

He said clients heard “income” and thought it meant they could draw down only the income their assets generated. In response, the firm was moving to a retirement “advice” philosophy, in which income was just one part.

Steve Fort, head of advice at Ironbark Advice, where about 15,000 client households average 67 years of age, said a philosophy did not mean one approach for every client. 

“Retirement philosophy shouldn’t mean that you have a single way of doing things for every client that comes in,” Fort said. 

“It’s just that these are your beliefs and your principles that you stand behind, that you apply to the various client circumstances that exist.” 

He said Ironbark used a framework that sorted clients into a grower, a protector or a spender in retirement, which determined whether a strategy such as bucketing would suit. 

Fort said that once an adviser had understood what mattered to a client, “then we can apply the philosophies, and I think having a philosophy [that] is clear, consistent, you’re able to stand behind and have rolled out by your advisers, not developed by your advisers, is better”.

The Conexus Institute* research fellow Geoff Warren said having “a philosophy that guides what you want to do is important, and it doesn’t have to be the same for everybody”. They key was instilling confidence in individuals as they approached retirement.

But Warren said the word “confidence” is used in at least four ways across the industry, and only some were relevant to advice: whether members felt their retirement was sorted; whether they had the confidence to invest in growth assets or to spend; the statistical confidence that a retiree would meet their goals; and confidence in the system and providers.

‘Therapeutic alliances’

Joanne Earl, honorary professor at UNSW and a psychologist who runs the practice retirementdoctor.com.au, said matching client and adviser mattered as much in advice as in therapy. Psychologists looked for “therapeutic alliance”, where some clients suited some practitioners better than others, and that approach is worth considering within an advice firm, Earl said. 

She said the missing element when individual retire – and the thing adviser should seek to instil in their clients – is “mastery”, or “the sense within someone that they have everything they need to take action”. A client without it might have a complete plan and still stall. 

“When I go into the bank and I talk to the bank manager, they run rings around me, I feel like a fool, and I walk out again. That’s someone with low mastery,” Earl said.

Earl said she had actually rehearsed her own retirement. About eight years out, she and her husband began tracking and their spending, but the question she could not answer came from her own adviser, who asked how much she would need for discretionary spending. Two years before retiring she began living on the income she expected to have, Earl said. 

“It was almost like a practice run,” she said. It would tell her whether the number, somewhere between $50,000 and $90,000, was right before the first year of retirement arrived.

Fort said advisers need to meet the emotional needs of clients before they apply their technical expertise, to address the fundamental “fear of running out versus the fear of locking in”. 

Clients approaching retirement were often watching parents move into care and adult children struggle to buy homes, while shifting from funding a lifestyle through work to funding it from assets.

Fort said the job was to help two people who might hold quite different values work out “what’s truly important to them in their life”, a conversation advisers were not trained to have.

Rekab Advice director and adviser Amie Baker said the work was heavily psychological and started early, sometimes when clients were in their mid-30s. Baker said resistance to retiring showed up most in her male clients, and tended to be about identity rather than money. 

One client was hit for a couple of hundred thousand dollars through a financial scam and had adult children moving back home, forcing them into mid-retirement restructure in an investment retirement income stream that “wasn’t a conversation we’d had a decade ago”, Baker said.

Jessica Brady, a former adviser who now provides a general advice only and is host of the Financially Fierce podcast, said younger clients were so disengaged from superannuation and retirement issues that even getting them to find their super was a challenge.

Many would be renters for life. At the other end of the spectrum, the bank of mum and dad was draining older people’s savings, Brady said. 

She said she regularly met women in their 50s and 60s coming out of a divorce with a couple of hundred thousand dollars and no history of managing money. When she tells them they need advice the answer too often is: “I don’t trust advisers; I’m scared to, because this is all I have”.

The overlooked ‘fourth bucket’

Jones said MLC supports a shift in advice thinking from investment bucketing to income layering. He said advisers using layering typically start with a layer covering the cost of living, “probably basics and necessities”, where a product offering more certainty might be introduced, then add layers for everyday spending and enjoyment, and a later-age layer.

Warren said layering and bucketing were not mutually exclusive strategies.

“To me, they’re actually the two sides of the same coin,” he said. How do I allocate my assets, and then what income comes out of each bucket?”

Warren said one advantage of layering was that “it gives you a vista across time”. He said a layering chart “looks like a guaranteed return on a chart, and it is not”, because the top layer carried market risk. Advisers should be careful to avoid any suggestion of guaranteeing income.

Warren said that in isolation, a lifetime income stream looked like a product people did not understand, but set within a broader plan, an account-based pension, a drawdown strategy and access to the age pension, it became a contributor to the overall mix whose income-for-life component fed back into confidence.

Aged Care Steps director Assyat David said a retirement of 25 years or more could not be treated as one homogeneous period, but as three stages defined by health, with spending tracing “a smile, three different phases”. 

She said confidence is inversely related to complexity, and complexity is rising, including under the new Aged Care Act, which took effect on 1 November and requires individuals to pay more towards their own care.

David said traditional strategies typically involve three buckets, but a fourth might be needed. 

“Maybe there needs to be a fourth bucket there, which is for frailty planning, to actually have a bit of money sitting aside to cover the costs of getting support at home or moving into residential care, and that part of the curve is only going to be getting longer, not shorter,” she said.

David said the home is usually left out of portfolio construction but comes into the equation in a retiree’s later life, when the biggest decision was what to do with it, including whether to sell (all or part of) it to fund a move into care. 

She said ageing in place increases longevity, but the innovative income stream market has not addressed how to draw on home equity in a way that appeals to clients, leaving reverse mortgages and the Centrelink pension loans scheme as the main options. 

Warren said considering the home is critical in any comprehensive retirement advice philosophy, as is the age pension, which works as a backstop that raises a retiree’s capacity to spend.

What the profession wants from Canberra

While it may pay for advisers and licensees to adopt consistent retirement advice philosophies, even if specific retirement strategies may vary from adviser to adviser and over time, it would help if the rules surrounding superannuation and retirement also remained consistent, and if it were easier to deal with government. 

Stanton said government assurance, such as the deposit guarantee introduced during the global financial crisis, might be needed for lifetime income products.

He said frequent change was eroding confidence in the system and its products. He said clients commonly questioned, for example, who stood behind guaranteed income products.

“Are they going to be around in 10 years’ time if they’re managing this guaranteed annuity?” he said.

Brady said that if she were given a magic wand to wave over Canberra, she’d use it to address whether anything useful could be delivered to the mass of Australians who would never sit down with an adviser, in a compliant way but which was not advice. 

She said lifelong renters were the most exposed, facing large income challenges in retirement unless more social housing was built. She agreed the gap was being filled by “the less quality influencers”, and by AI.

Intersection of complexities

Jones said advice sits at the meeting point of a number of overlapping and sometimes contradictory systems. Banking and the use of home equity, superannuation, the Age Pension and aged care each operate under their own rules, and historically it has been hard work for advisers to make those systems work together for the benefit of clients.

“The advisers sort of sat at the centre of it all, having to deal with that complexity,” he said.

Thurecht said the order in which things happen in retirement dictated the shape of advice delivered. The first couple of years were about the basics of living on drawn income, after which the conversation could turn to “your dreams and bigger picture and estate planning, legacy”.

David said settings in one system invariably affected others. Qualifying a client for even a dollar of age pension could change their situation elsewhere, because budget rules excluded age pensioners from a minimum 30 per cent tax on capital gains assets, and support-at-home costs are set according to whether a person is a full or part pensioner. 

An adviser who could use the system to get a client over the line could have a significant effect on their overall portfolio, David said.

Baker said pulling all the parts together is a challenge for an advice practice. Her offsider Devina had spent the best part of three weeks dealing with Centrelink for a single couple, including setting the business up on a portal, and Baker was hiring a part-time staff member to handle it.

“That’s actually quite a challenge from a commercial point of view for an advice practice,” Baker said.

Jones said there is still a job for platforms to do to integrate the various elements of the retirement system “all the way through to the advisers’ workbench”, so they can be modelled, implemented and managed.

He said more platform providers are now seeing the opportunity to do that for advice practices, but “they’re at the start of that journey”.

But he said just as managed accounts existed for a long time but only became useful at scale once they were integrated on platform, the same thing is now happening with innovative retirement income streams, which have existed since 2019 but have only become practical for advisers to consider in the last couple of years now that they are platform-enabled.

The road ahead for retirement advice

As more than three million Australians approach retirement over the next decade, the roundtable underscored a clear message: consistency matters, but uniformity does not.

A well-defined retirement income philosophy gives practices a shared foundation, while still allowing advisers to apply their own strategies, whether bucketing, income layering, or a blend of both.

Yet the work extends well beyond technical modelling. Advisers must address clients’ emotional needs, build mastery and confidence, and navigate the tangled intersection of super, the age pension, aged care and home equity.

Realising that potential will require continued support from platforms, product providers and a more consistent regulatory framework.

*The Conexus Institute is a not-for-profit think-tank philanthropically funded by Conexus Financial, the publisher of Professional Planner.