Structural shift to fundamentally alter the provision of advice to retirees


Specialist investment research house Lonsec, and global actuarial and consulting firm Milliman, believe strong catalysts and structural trends have emerged that will fundamentally alter the provision of financial advice to retirees.

In a jointly authored white paper released today, they contend that the current financial advice model serving retirees is suboptimal.

The white paper, entitled: ‘Boomers, Herding, Denial and Zeitgeist: Who will be First to Grasp the Post-Retirement Advice Opportunity?’ challenges some commonly used approaches to managing portfolios in post-retirement. It also provides insight into the direction they believe the advice process and the portfolio construction approach should be heading.

The size of the baby-boomer pool by number, and its aggregate wealth, has meant that boomers have shaped entire industries and will continue to do so. As boomers enter retirement, their needs and objectives inherently change, as do the risks they face.

At the same time, their purchasing behaviour, the level of engagement with their finances and access to information, is also changing. This adds up to mounting expectations of the performance of the advice process and the products they are invested in.

“There is increasing recognition of the seriousness of Australia’s retirement funding issue and general longevity risk. With a growing number of baby-boomers reaching retirement age, and the end of the bull market in Australian equities in 2008, many retirees – and their advisers – are questioning how they will meet their retirement needs in the future,” said Mr Wade Matterson, Practice Leader, Milliman.

“To date, solutions to these challenges have tended to be product driven rather than advice driven, with many retirement strategies lacking analytical rigour. While there is a growing number of retirement products on the market, there continues to be a lack of guidance around constructing portfolios to meet retiree objectives, with much of the industry anchored to approaches more relevant to accumulators,” said Mr Lukasz de Pourbaix, Head of Investment Consulting, Lonsec.

Lonsec and Milliman believe a new approach is required to produce an outcomes-led advice solution that is closely aligned to the challenges facing advisers in a post FoFA environment and which also meets the needs of superannuation funds and institutions.

The white paper leverages Lonsec’s strong portfolio construction processes and Milliman’s global expertise and actuarial rigour in providing retirement advice to institutions globally. It contends:

  • The current financial advice model serving retirees is suboptimal.
  • The suite of readily-available products, tailored specifically for retirees, is too limited.
  • While the financial services industry is busy identifying the challenges and debating the issues of post-retirement investing, solutions and responses have been thin on the ground.
  • It is inevitable that the needs of boomers in retirement will have to be met. But to ‘follow the money’ significant wealth industry business, product and advice process reengineering must occur.

It will be no small task, but the rewards for first movers who offer relevant, strategically-driven and robustly-tested advice solutions and products to retirees will be great. It asks: Who will be first to grasp the post-retirement advice opportunity?

Lonsec and Milliman believe that future success in funds management and financial advice will hinge on genuinely responding to the needs of retirees. Further initiatives are planned to address specific post-retirement investment issues in detail, offering progress towards timely solutions. These initiatives will provide independent insight, as well as a solution-set, for Australian advisers, superannuation funds and institutions navigating the Australian retirement challenge.

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