EDITOR’S NOTE: This article was originally posted on Super Review’s sister-publication, ifa.
It is important to state, retirement and super income solutions do have the capability to make an adviser’s job easier. According to Accurium’s Confidence for life – a retirement advice framework report released in collaboration with Generation Life, lifetime income products offer a number of benefits to advisers and clients.
“Unlike an account-based pension (ABP), which can run out if markets perform poorly or withdrawals are too high, lifetime income products offer an efficient source of guaranteed income by pooling longevity risk across a group of investors,” the report said.
“Together, a lifetime income product and ABP can manage risk and diversify the income sources of a client’s portfolio. These findings are significant given a central issue in retirement planning is longevity risk, or the fear of outliving savings.
The research demonstrates how life income can help by providing income guaranteed for life that can grow with investment performance while also improving access to the age pension today.”
Patrick Clarke, general manager of retirement solutions at Generation Life, said: “This research underscores how [life income products] can give retirees both confidence and choice. By combining income guaranteed for life with access to growth assets.”
However, advisers are now facing a new issue with the flurry of products hitting the market: clients are simply not aware of what’s on the table.
“Aside from people who have watched an episode of Retire Right or something and said they’d like to learn about annuities, I don’t think a client has ever asked me about them in my entire career, and that’s 15 years,” Fradley Advice founder Nathan Fradleyt said at the Evolution of Advice Summit (EAS) in Sydney last week.
“They barely understand what super is, they barely understand an account-based pension, so this is largely on us and on super funds to educate people about the options that are available. I don’t think it’s front of mind for them at all.”
One of the largest issues in this regard is explaining to clients what the difference between these products, which often offering very similar portfolios, which can complicate the process.
“One of the trickiest things is going to be not just educating people on why these products are good, but helping them understand what they’re actually investing in,” Fradley said.
“Every single product is going to have a different name for a different thing and we’re going to end up with all these corny, weird, trademarked words that providers create. Then advisers have to explain what all of that actually means and how it fits into a client’s retirement strategy.”
That becomes particularly important when considering the fact, as Fradley highlighted, clients are unlikely to switch out of these products once they are in them, meaning advisers need to be around all the minor details, differences and contrasts between products and how those will play out over decades.
He explained: “We’ve got to be really good at taking the complex and making it simple enough for clients to understand and ask the right questions. If we don’t do that, that internal scepticism people naturally have starts going off, because these products can sound too good to be true if they’re not properly explained.”
If client education can increase, then Fradley believes adoption will increase, a net positive for both advisers and clients.
“If we can get those things right, particularly education and communication, and this becomes more normal, where it’s a normal thing to have an annuity or a lifetime income solution as part of a retirement program instead of something people have never really heard of, then I think it becomes far more normal for people to use them.”
