Retirement advice; an art or a science?
Retirement advice; an art or a science? This is the working title for a new guide I am writing which looks at the retirement advice process. One of the reasons advices at retirement is so complicated is there are a lot of technical factors and a lot of behavioural factors to take into account.
One of the advantages of looking at both the technical and emotional side of retirement is it shows why it is so difficult to automate advice at retirement and demonstrates the value of personal financial advice.
Because retirement planning must take account of non-technical factors such as behavioural bias and emotional attachments, it is important that people play an active part in the advice process and be encouraged to discuss their personal preferences.
What may seem irrational to a technically minded adviser, maybe perfectly rational to a client who makes emotionally charged decisions. Just look at some of the reasons why steel workers wanted to transfer form their DB pensions and why so many clients wanted to cash in their pensions. In both cases the lack of trust in the scheme, employer or pension company was a major factor.
Therefore, one the most important skills advisers need is the ability to mange their client’s behaviour and make sure they see both sides of the argument. Advice is not necessarily like the doctor patient relationship where the symptoms are analysed and a diagnosis given. I explain advice as being a ‘logical decision-making process’ where both the adviser and client and actively involved in the advice process.
One of the problems is that although advisers are trained (or should be trained) to make good decisions, individual clients often have little experience or knowledge about making decisions about converting pension pots into cash and income. Therefore, they need a lot of help to understand the key issues.
My view is that as an adviser I cannot necessarily tell people what the right answer is because there is often not a right or wrong answer but a range of suitable solutions to choose from. Therefore, an essential job for all advisers to make sure their clients have enough information, so they can play an active part in the decision-making process.
Don’t get me wrong. I am not saying that a client’s personal preferences should override the expert opinion of an adviser. I am just saying that advisers must sometimes balance what is the best technical solution with what the client feels most comfortable with.
This must be good news because for advisers because those with the right mix of technical and personal skills will be in high demand for a long time to come because many people will need a great deal of help in overcoming the behavioural biases which may prevent them for getting the best outcomes if they try and do it themselves.