Last month, I wrote about the nudge factor which aims to nudge people towards behaviour that should result in better outcomes for them.
When I first started advising clients about annuity and drawdown options 20 years ago, there was no need for conscious nudge techniques because clients had little knowledge of the options or they had open minds. Today, the situation is quite different as there is far more information in the public arena and the message to shop around for the best annuity is reaching more ears.
The initial conversation with a client is often along the lines: “I know exactly what I want, just get me the best annuity rate.” This is fine if clients know what they want but in most cases they do not know what they want.
I have been successful in taking many of the “I know what I want” clients through a process that has resulted in them changing their minds about the best options for their circumstances.
The first nudge occurs at the initial point of contact where instead of talking about products, I talk about key issues and questions. There are three key questions - when to take benefits, what type of annuity or drawdown and which options. There are four key issues for most individuals:
- How much income do they need today?
- What are their future income needs and expectations?
- How much flexibility and control do they want?
- What do they want to happen when they die?
The point here is that the discussion is not about products but their retirement objectives.
The second nudge is encouraging clients to compare and contrast other options. Although the “I know what I want” client may indeed invest in a level guaranteed lifetime annuity, he or she may change their minds if they truly understand the options.
“There is more information and the message to shop around for the best annuity is reaching more ears”
Finally, my practical experience throws up an interesting question - what is advice? Is it a professional adviser asking questions about income needs and attitude to risk and recommending a particular course of action? Or is it more of a process of informed choice, where the adviser prompts the client to ask the right questions and encourages them to consider the options, with the aim of helping the client decide which option or combination of options is most suitable.
In my view, it is the latter because although I think I know a lot about the various annuity and drawdown options, I cannot tell clients what the right answer is because I do not know what the right answer is. Seriously, what the right option for any particular client is will not be known until some time in the future and will depend on a complex combination of factors.
In short, if an adviser nudges their clients to think about the issues, consider the options and ask the right questions, it will result in better outcomes for all.