Clients entering retirement need more than product advice

Ben Peele

Ben Peele

I recently chaired one of our regular sessions with younger advisers (mainly under 40-years-old), focusing on the topic of clients approaching, or already in, retirement.

A poll among the 30 attendees found that almost two-thirds (59 per cent) have client bases where 50 per cent or more clients are at or post-retirement.

This aligns with research from NextWealth, which found that retirement planning now accounts for more than 60 per cent of assets under advice.

We wanted to find out how our group is handling this demographic and what they told us was surprising.

Permission, not product

We had expected the session to focus on product and what changes to investment approaches are being made to facilitate retirement needs.

Are central retirement propositions being used, are different risk profilers being used?

In both cases, the answers were negative: nine out of 10 did not use a CRP, only 3 per cent did and a further 7 per cent were considering it. Almost all (97 per cent) did not change the risk profiler they used for clients in retirement.

What did emerge is that discussions with clients who are in later life were less about choosing a product and more about showing the possibilities that retirement offered them. In fact, a better description for the process would be financial counselling, not advice. 

According to our group, many clients are:

  • Confused or ignorant about state pensions: what they will get and when.
  • Unaware of what their actual expenditure is and ill equipped to know what they will need to fund retirement.
  • Desperate to hold onto ‘nest eggs’ at the expense of living their lives now.
  • Have too much equity tied up in property.
  • Confused about pensions overall.

The group highlighted that clients often underestimate the benefit of state pensions, many don’t even know how much they are worth. Most clients underestimate how much they spend, underestimate how long they will live for and hence overestimate how long their pension will last.

The group noted some clients haven’t realised that they can actually retire now – this is great news to be able to break to them.

We shouldn’t encourage spending for no reason, but equally there is no need to save unnecessarily. Advisers should be able to help their clients enjoy retirement and encourage the bucket list. Retirement requires a complete change in mindset. Clients have spent their whole life saving and are now being told they have to spend. Most are resistant to spend their capital, it takes time to convince them that this is what they’ve been saving for.

The group also pointed out that most of the wealth belonging to the baby boomer generation is tied up in property, and it makes sense to deal with the illiquidity issue in advance.

Retirement is full of jargon that is hard for clients to understand – part of an adviser’s skills is helping to demystify that.

Common issues

Some of the issues advisers are dealing with include:

  • Fear of how much care is going to cost (one adviser quoted that the average is two years, costing around £50,000 – far below what clients expect).
  • People struggling to link/relate capital and income.
  • Inheritance: clients who intend to pass their pension onto their family should be investing capital in line with the inheritor’s risk profile, not their own.

Cash flow modelling

While CRPs didn’t get much interest from the group, cash flow modelling is a tool popular with the majority. They said cash flow modelling is very helpful and can demonstrate the impact of taking a withdrawal.

Life is for living

Overall, the session was very insightful about the issues faced by financial advisers. Retirement comes with all sorts of challenges; not just about how much money is in the bank.