Advisers’ changing role in retirement transition

Fidelity International MYMAVINS

18 March 2022
| By Industry |
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For many, approaching retirement is a trigger for seeking financial advice, often for the first time. But the way people think about retirement is changing and the events of the past few years are leading people to place more emphasis on factors such as wellbeing, good health and life satisfaction.
Obviously having enough money helps people achieve these things, but for many it is not their only driver, and financial advisers who want to provide the best assistance to clients during this difficult time need to understand what retirees in the 2020s are looking for, and their biggest concerns and challenges.
The reason that approaching retirement is the biggest trigger for seeking advice from a financial adviser (at 31.7% according to Fidelity International’s 2020 The Value of Advice report) is because a large chunk of pre-retirees are not particularly looking forward to it.
They are concerned that once they stop earning an income there is the real possibility they could run out of money before they die.
A detailed study was conducted by independent research firm MYMAVINS for Fidelity International which surveyed over 1,500 Australians over the age of 50 in September 2021. 
They found that over half of pre-retirees were not looking forward to retirement and two in five did not feel they were on the right track to be financially prepared for retirement.
Only 10% of pre-retirees said they had an actual documented retirement plan, although three in five had some vague financial plans.
When asked what they thought about when planning for retirement, many were just as focussed on how they would spend their time, where they would live, future health care needs and how to pass on their wealth, as they were on their financial situation. Chart 1 highlights the issues they prioritise.  
The changing nature of work means that many people are also looking to keep working until later in life in some capacity. The drivers of this are sometimes as simple as enjoying work or wishing to stay connected with others in the workplace.
Financial need is also a reason for those with insufficient retirement plans, meaning some people just have to work longer to fund the retirement life they desire.
The fact is that life plans often change through retirement. Losing a partner, facing a major personal health crisis or an injury that impairs mobility, can all impact on when and how you will enter retirement.
It is interesting, but not surprising, that our research found those who felt in control of their retirement had higher measures of life satisfaction. Those who felt their retirement was completely out of their control rated their life satisfaction the lowest.
An effective way retirees can avoid low levels of life satisfaction is to have a Plan B or contingency plan and be ready for something going astray. Those who are forced into earlier retirement, through events such as job loss or health issues, are likely to have a much more positive emotional journey if they have already identified a back-up plan. 
Good financial advisers in the current environment will recognise that pre-retirees and retirees require more than just a product solution. They need advice tailored to their particular circumstances and situation.
The era of ‘set and forget’ once a client hits retirement is also gone. Clients require ongoing support and advice throughout retirement, especially when they experience major life events, like the death of a partner, or a major market or economic disruption. 
There are four areas that advisers can help their clients with building confidence and engagement with their retirement affairs: An Empowerment Framework:
1) System trust: Help clients understand the superannuation system and the wider financial system; make it more relatable
2) Self-empowerment: Help build ‘belief in self’ to give clients confidence and conviction in their own decision making
3) Self-efficacy: Belief in clients’ own ability to make effective financial decisions
4) Self-determination: Help create confidence to have conviction and will power to want to take control of finances
When it comes to engaging with clients, better-targeted conversations with them can be much more productive.  It is therefore very helpful to understand clients’ preferences and behavioural types to enable better targeted conversations. In our
2020 research report on the value of advice, we uncovered four clusters of client types. By understanding which particular cluster a client falls into, an approach can be tailored to better suit their needs.
We labelled the four segments with ‘navigator’ styles – celestial navigators, GPS navigators, radio navigators and compass navigators.  
Celestial navigators
Celestial navigators will usually see the bigger picture. They will welcome advice if a financial adviser can see the complexity of their affairs and value their knowledge. They are usually financially strong and are optimistic about the future.
They have high levels of life satisfaction and financial confidence and low financial stress.
They most value technical advice from a financial adviser and may not take kindly to behavioural and emotional suggestions, unless they are framed in the context of financial strategies.
GPS navigators 
GPS navigators want to see evidence of the benefits a financial adviser can provide. Their levels of life satisfaction are not as high as celestial navigators, but they are typically wealthy, well-educated and financially literate. They just tend to worry more.
Financial advisers can help GPS navigators by reaching out to them as early as possible in their retirement journey. By doing so, they can help alleviate some of their concerns and add significant value from a wellbeing perspective. 
Stress testing retirement plans under various scenarios is a good way to instil spending confidence in a GPS navigator. Performance numbers can highlight what financial benefits are being delivered to the client, but it is also important to check in with GPS navigators to discover their emotional state around certain matters and how confident they feel about the future.
By tracking their wellbeing, as well as their investments, a financial adviser can highlight their value beyond the cold hard numbers. 
Radio navigators
Radio navigators are all about the connection. They are relationship driven and want to ‘click’ with their financial adviser. If trust is established with this kind of client, they will look to their financial adviser for assistance with most major financial decisions.
Unfortunately, they also have very high financial stress which can sometimes have physical impacts. To allay some of these fears, advisers can use the trust placed in them to apply cognitive frameworks to enhance their wellbeing.
This group can especially benefit from being included in the formulation of advice and also the cost benefit analysis of particular financial choices being suggested. By giving them this kind of control, their competence will build which will also lead to better financial confidence and a sense of control. 
Compass navigators
Compass navigators may be the hardest group to engage under the traditional model of advice. This group tends to be highly educated and younger and don’t generally perceive the value in professional advice. They prefer to consume advice transactionally and are very digitally savvy.
But instead of writing this group off, don’t forget that many of the children of existing clients could fall into this group, so there may be benefits to tailoring parts of a service offering to them.
They are not interested in high-cost advice, but they might engage with some low-cost, low-service digital advice. 
By providing the digital advice they are demanding at this stage of their lives, this group might be more willing to accept a more tailored and bespoke approach as they get older and closer to retirement. 
In summary, when financial advisers understand the drivers of life satisfaction and wellbeing, they can tailor and enhance their service offerings to bring about better outcomes for their clients.
These drivers can be summarised as the Six C’s: circumstances, character, connection, control confidence and capability. When all of these six Cs are present in retirement, retirees are at their happiest. They are also best positioned to weather any unexpected financial shocks.
The opportunities for financial advisers who get this right are significant. Our study found that most pre-retirees want assistance with transitioning into retirement, but only one in 20 are currently advised. 
By engaging with clients through a holistic approach, and also understanding a client’s particular ‘navigator’ style, financial advisers can have a positive and life-changing impact on people about to experience one of the most transformative periods of their lives. 
Richard Dinham is head of client solutions and retirement at Fidelity International.
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