Many in retirement are travelling comfortably, with three key factors contributing to their happiness – good physical and mental health and enough money to enjoy life.
Perhaps the assumption that markets are still anchored by predictable economic policies needs to be challenged. For the first time since the fall of the Berlin Wall, political volatility – once background noise – is potentially reshaping investment risk at a structural level.
Well-heeled seniors willing to look past the price if the advice is right
In years past, clients coming through the door for the first time were more likely to be coming via another adviser – or even advisers – jaded by their experience and hopeful of achieving a better outcome this time.
Today, it’s different. Many new clients are seeking retirement-focused financial advice for the first time. Having few preconceived notions about the advice industry, they are open to ideas about how best to manage their retirement.
That this is happening should not surprise. According to the Australian Bureau of Statistics, 130,000 people retired in 2022, a number that will only grow as more Baby Boomers leave the workforce.
While many will go on to the government-funded pension, a healthy percentage will own their home and have a sizeable superannuation nest egg – the self-funded retiree is no longer the preserve of inherited wealth. They are also acutely aware that they will be living, on average, well into their 80s.
There are two other factors at play. First, it’s happening at a time of improving financial literacy via blogs, podcasts and YouTube channels, contributing to a renewed openness about financial advice. Second, and post the Financial Services Royal Commission, the advice industry is on a far more professional footing.
But two constants link the old and the new client – what value can a financial adviser provide and what will it cost?
This is particularly true of our team where we openly charge higher-than-average fees for a financial plan, confident of adding significantly more value than what the service costs.
It’s easy for most advisers to find savings or benefits for clients, whether in be insurance, tax savings, fee savings or the tailoring of a superannuation fund, but many of the benefits of getting financial advice, particularly in an ongoing relationship, aren’t so obvious.
In fact, many are qualitative. It could be as simple as offering a sounding board during periods of stress or assisting clients to ensure they don’t sell when it feels like that is their only option.
Working primarily with clients who are seeking incomes of more than $80,000 a year in retirement, we are talking about a material level of wealth and opportunity. So, when the question eventually comes up, “what value do I get for the cost of advice”, I have a simple response: “What’s the cost of getting it wrong?”
After the initial shock, the reason becomes more obvious, and we’re able to provide a list of less quantifiable but real potential costs of getting anything about your finances wrong.
This list is by no means definitive, but it does include some common examples where clients can get it wrong, potentially costing them and their families sizeable amount of their wealth.
Many of these mistakes revolve around their retirement savings. Some continue working longer and harder than they need to, fearful they will run out of the money, when all the evidence suggests they simply won’t.
Others throw caution to the wind and cash out their superannuation for those long-awaited holidays and luxury car, almost certainly the wrong option.
More specifically, some fail to start a pension from their superannuation, so they end up paying more tax. Others miscalculate their contribution caps or fail to account for an extra contribution, resulting in excess contributions tax.
We advise clients to review their superannuation fund. More than likely your employment determined your fund in the accumulation phase. But in retirement it might not be the best option.
Is it taking on more risk than you need in your portfolio? Is the fund holding inappropriate investments given your objectives and experience? This particularly applies if you have a self-managed super fund.
Other examples include claiming more tax deductions than you have in taxable income, selling a property in the wrong financial year, failing to audit your portfolio, missing the fine print on the downsizer contributions and holding on to an insurance policy when there is no need.
Last, but not least, failing to review your service providers. And that includes us.
Whether the cost of your financial plan is $5,000 or north of $10,000, the real value is well above this, not to mention the massive cost if you get it wrong.
