Last week one of the biggest players in the financial advice space launched a retirement income product that promises to solve all the issues an individual typically faces as they transition, from working life and the accumulation phase of their superannuation journey, into retirement and decumulation.
The product, launched by AMP, is the latest but will not be the last in a line of products that attempt to manage market, inflation and longevity risk, all in one box. Products like this are by their nature complex because the management of these different risks creates conflicting objectives. Such products inevitably require the involvement of a financial adviser to help explain to the investor what’s going to happen and how, and to ensure the products are being delivered into the appropriate hands.
The role of financial advice is integral to AMP’s approach. The company has been explicit in stating there is a critical role for financial advisers in delivering retirement income solutions, and specifically in relation to this product.
Advice should be front-and-centre in the retirement income plans of superannuation funds, too, irrespective of whether a fund wants to solve its members’ retirement income needs with a single product solution, or whether they think it should be addressed like any other investment and planning issue that requires advice to solve.
Advisers already do this
Financial advisers are already skilled at developing multi-dimensional retirement income solutions. A common approach is known as bucketing, another is known as income layering, and there are other approaches besides.
To an extent, advisers can do the retirement income thing with the tools they already have. But AMP, and others, are seeking to do a lot of the legwork for advisers, and to introduce elements to the mix that advisers can’t as readily themselves arrange for clients.
But of course, retirement is about more than just converting a product solution and converting a member from an accumulation strategy to a decumulation strategy. There are complex social security rules and means testing rules, and advisers come into their own helping clients navigate these issues.
The point is that helping an individual transition to a fulfilling and rewarding retirement is a complex business. It can’t easily be done by product alone; it requires advice or guidance to get through it in the best way possible.
Happy and satisfied members
It’s no coincidence that individuals who have a relationship with a financial adviser are regularly found in research to be happier and more satisfied in retirement than individuals who do not.
And it’s also been shown that satisfaction with retirement has only a relatively low correlation with account balances. In other words, it’s the sense of control and certainty that advice brings that is the bigger contributor to satisfaction.
While we’re at it, it’s worth mentioning that there’s also emerging evidence that members of smaller, sub-$20 billion funds generally have a greater sense of engagement with their fund than do members of larger funds, and this sense of engagement is also a contributor to satisfaction in retirement.
AMP recognises that it makes most sense to tackle the retirement income issue with a combination of a smart product and quality financial advice. And it’s a signal that super funds should heed as they develop their own retirement income solutions.