Recently, I had a fascinating day that made me reflect on how rapidly our world is changing.
In the morning, I was interviewed by an actuary completing a PhD in at-retirement advice, focusing on the pros and cons of annuities. When I got home, I had an email from my eldest son, who is 21 and at university studying graphic design. He asked me to look at a contract he had been sent by an NFT publicist, who wanted to commission him to do some design work, for which he would be paid in the cryptocurrency Ethereum.
On the same day, my middle son, who is a professional rugby player and also a clothing designer, was preparing for the drop of his latest collection. That drop landed on a Thursday and was sold out by the Friday – and he had made himself a tidy sum overnight.
At the end of the day, I thought about the vast distance between what has historically been considered good money management – saving into a pension then buying an annuity at retirement – and what my sons and their friends are doing to make money while they are at university or early in their careers.
A recent Financial Times article compared the advice that those of us who are in our 50s today can offer to our children with the advice we might have received from our parents when we were young. Formed during the war and the thriftiness of rationing, our parents’ attitudes to money were often unsurprisingly cautious – and so often of less relevance to us when we started working in the 1980s and 1990s, just as traditional career paths, the ‘job for life’ and final salary pension schemes began to fade away.
Similarly, our kids, with their side hustles and crypto wallets, might understandably view us as dinosaurs if we started talking to them about saving up for an annuity.
In a world of portfolio careers, in which the majority of people no longer work for large corporations but for SMEs and micro-businesses, even those in their 60s today are likely to be reaching retirement with financial arrangements that look very different from those of the fairly recent past.
Yes, income from pensions and investments is still likely to be the mainstay of private provision, but it is likely to be only one of the resources people draw on. Many people in retirement will continue to work to some extent, or to keep a small business going, receive rental income or AirBnB their homes. The core portfolio is still likely to be the fundamental source of wealth and security, but for most people, retirement planning will become increasingly complex.
According to figures from the Department for Work and Pensions, pension households under age 75 have a far wider spread of provision in terms of other income, earned income, investment and pension incomes, in addition to their state pension, than those over 75.
What does this mean for advisers? First, it means a willingness to get to grips with change is essential. Fortunately, the industry is used to constant evolution, whether that is on the regulatory side or with product innovation or wholesale shifts such as the post-financial crisis move to multi-asset investing.
Advisers who are in the habit of taking the time to understand new asset classes and products are well-positioned to help their clients make the choices that are right for their risk appetite and circumstances.
> Even those in their 60s today are likely to be reaching retirement with financial arrangements that look very different from those of the fairly recent past
Second, it requires a willingness for important conversations with clients. There can not be many in the industry who have not yet had the one about cryptocurrencies – which, in my opinion, should not involve a flat dismissal.
Yes, crypto is an unregulated Wild West, but many clients will themselves have seen, or have children or friends who have seen, spectacular returns over the past two years or so, making their multi-asset portfolios look mundane in comparison.
The heart of the conversation is asking the client how comfortable they would be investing their assets in something that, while it can grow quickly by orders of magnitude, has also shown a propensity to fall just as quickly and as sharply. Working through their capacity to take this risk and the potential impact on their lifestyle is core to good advice.
Finally, the shift in what retirement looks like demands robust cash flow planning that can capture all the potential sources of income in a client’s life – not just the main portfolio, and not only income that arrives in a neat and predictable stream, like that from an annuity.
Advisers have the privilege of living outside of their own generations when it comes to money management. They can look back at the lessons of the past and forwards to the possibilities of the future. And, through generational change, they can hold fast to the core principles of financial planning, which are more, rather than less, valuable in a rapidly changing world.
Ben Goss is chief executive of Dynamic Planner
