Retirement advice: an art or a science? One of the reasons advice at retirement is so complicated is that there are a lot of technical and behavioural factors to take into account. That is why it is so difficult to automate this kind of advice.
Because retirement planning must take account of factors such as behavioural bias and emotional attachments, it is important clients play an active part in the process. What may seem irrational to a technically minded adviser may be perfectly rational to a client who makes emotionally charged decisions.
Just look at some of the reasons why steelworkers wanted to transfer their pensions or why so many others want to cash in theirs. In both cases the lack of trust in the scheme, employer or pension company was a major factor.
With this in mind, one of the most important skills advisers need is the ability to manage a client’s behaviour, making 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. Advice is a logical decision-making process, where both adviser and client are actively involved.
One of the problems is that, while advisers are trained to make good decisions, clients often have little experience or knowledge of converting pension pots into cash and income. They need a lot of help to understand the key issues. Advisers cannot necessarily tell people what the right answer is because there is often a range of suitable solutions.
So they must make sure the client has enough information to play an active part in the decision-making process.
I am not saying a client’s personal preferences should override the expert opinion of an adviser. I am just saying advisers must sometimes balance what the best technical solution is with what the client feels most comfortable with.
Those advisers with the right mix of technical and personal skills will be in high demand. Many people will need a great deal of help in overcoming the behavioural biases that may prevent them from getting the best outcomes if trying to do it themselves.
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William Burrows is retirement director at Better Retirement