Wealth management industry failing to educate retirees: PwC
The wealth management industry is failing to properly educate retirees about longevity risk and investment risk, according to a survey conducted by PricewaterhouseCoopers (PwC).
The survey - based on interviews with four major wealth management companies, three financial planning organisations and two large superannuation funds - found that advice about retirement planning was often oversimplified and reliant on averages rather than realistic examples.
PwC partner Catherine Vance said financial planners often make the mistake of directing their clients to average life expectancy tables.
"Advisers might focus on picking up a life expectancy table and say 'at age 65 it's 84 for men and 87 for women'," she said.
"For starters, they miss the best estimate mortality improvements, which would push it out to 86 [for men] and 90 [for women]. But it's also an average: 50 per cent live longer than that. One in five would actually be 94 and 97," Vance said.
The survey also found planners are reluctant to talk about longevity risk because they lack the products to properly combat it.
Retirees are also poorly served by the industry when it comes to investment risk, Vance said.
She singled out investment calculators that provide consumers with an average rate of return, yet fail to take into account the variability of returns.
"Two people could start with a $500,000 account at age 65. They could have exactly the same average return over 20 years, but because one gets off to a poor start and one gets off to a good start, one could end up with $300,000 at the end of 20 years and the other person could have nothing," Vance said.
The survey found the risks of "simply getting market volatility" are not made clear to people when they're looking to invest their money at age 65, Vance said.
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