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How will you show value?

20 November 2018Jonathan Faurie

At the recently held 2018 Morningstar Adviser Forum, one of the speakers pointed out that the problem with providing retirement saving advice to South African’s is that the South African public is extremely diverse and has a range of unique needs that need to be catered for leading up to and post retirement.

Advisers need to find a way around this challenge and often look towards industry surveys which point out what the public looks for when it comes to retirement. 

Retirement company Just South Africa recently released its 2018 Just Retirement Insights which showed that there are a few interesting trends in the industry when it comes to consumers. 

Guaranteed income

Bjorn Ladewig, a Longevity Actuary at Just South Africa, pointed out that the vast majority of people across all demographic profiles would prefer to have a secure guaranteed income for the rest of their life above the option of investing their retirement fund amount and making withdrawals. 

“One of the reasons for the preference for a secure guaranteed income could be risk aversion. One third of the sample disagreed with the statement that they did not mind taking risks with their money for saving or investment purposes. Furthermore, over one third of people cannot afford to lose any of their retirement fund money before it seriously affects their retirement plans,” said Ladewig. 

He added that, in line with these findings about secure guaranteed income is the fact that a high percentage of people disagreed with the statement that they live from day to day and that they are not very concerned about the future. 

Financial planning

According to the Just Retirement Insights, two thirds of 345 people surveyed by Just South Africa rate themselves as being good with financial planning. 

A rather concerning statistic to come out of the survey results is that only 17,5% of the survey sample use an adviser when planning for retirement. The research further shows that 21% of the survey sample rely on the retirement savings advise given to them by HR. 

When asked about why there are so many people who prefer to do their own financial planning and not make use of an adviser, Ladewig said that there are a number of reasons behind this. 

“The main reason behind not using financial advisers is that the majority (40,8%) of those who prefer to use the do-it-yourself approach feel that the process is simple enough to adopt this approach. A further 26,6% feels that financial advisers charge to much, and 11,8% of the do-it-yourself crowd pointed out that the information is available online for free,” said Ladewig. 

“What is encouraging about retirement saving is that 84% of the survey sample said that they have never used a robo-adviser and would be reluctant to use robo advise in the future,” said Deane Moore, CEO of Just South Africa.

Longevity risks

Longevity has been described as one of the biggest risks that retirees face in the modern age. With advances in medical care, and diets that contribute towards people becoming healthier, there is a growing trend of people outliving their retirement savings. 

This trend was highlighted in the Just Retirement Insights. 

“The majority of the survey respondents rated their health as very good or above average for people their age. In addition, respondents generally underestimated their own life expectancy. This can be a challenge when saving for retirement,” said Ladewig. 

He added that few people have thought about dementia or Alzheimer’s disease or have started planning to protect their financial future from the impact of dementia or Alzheimer’s disease. “This is concerning, considering the prevalence of dementia and Alzheimer’s disease. Worldwide, dementia affects one in 20 people over the age of 65 and one in five over the age of 80,” said Moore. 

Impacts on the industry

The majority of the survey sample indicated that they feel that they are good at financial planning. However, evidence does not support this. 

“The survey sample significantly underestimate the expenses that they would incur in retirement. A staggering 38% of the sample say they spent nothing on accommodation, and 24% indicated that they spent nothing on medical expenses,” said Ladewig. 

He added that the majority of the survey sample underestimate longevity and want to leave a legacy when they have insufficient assets to support their own retirement income needs.   

“The result of this is that these retirees will become dependent on their children or state old age grants and gamble with their life savings by investing in a living annuity that has no longevity protection,” said Moore. 

A significant opportunity

It goes without saying that the findings of the Just Retirement Insights provides a massive opportunities for financial advisers. 

While financial advice may seem expensive to certain people, the payoffs add value. People who do their own financial advice will make mistakes and will significantly err in their judgement when it comes to expenses in retirement and longevity. 

Perhaps this is the angle that advisers can use when trying to convert the do-it-yourself crowd?  

Editor’s Thoughts:
Of all the trends that are starting to emerge, the fact that there is a movement towards planning their own retirement is frightening. There are opportunities, if advisers can show their value appropriately. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.

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