The planning profession must work hard to overcome the “fear of advice” many consumers have, a new guide from retirement planning veteran Billy Burrows says.
In the guide, entitled Retirement Advice: An Art or Science?, Burrows notes that while some individuals with modest wealth have benefited from direct investment options, the complexity and importance of retirement planning means advisers should not be shied away from for those facing tough decisions.
Burrows writes: “Don’t forget, one of the most important behavioural biases might be the fear of advice.
“Many people fall into the trap of thinking it is easy and they can make retirement decisions without financial advice…Some clients think they can do it themselves and don’t need advice. They may have the mistaken believe that advice is expensive and complex.
“Some people have an aversion to paying for advice but if they don’t take advice, they may make the wrong decisions “
Burrows notes a host of other behavioural biases that it is important to take advice in order to overcome, for example, hesitating on major events, and misjudging the amount of risk individuals think they need to take.
Burrows writes: “Many people procrastinate and have an aversion to making complex decisions.
“If I had a pound for every client who bravely said ‘I don’t mind taking risks’ but then became anxious when there was a downturn in the financial markets, I would be rich.”
Burrows recommends advisers check in on drawdown plans much more frequently than mandatory annual reviews, as well as involving clients through the advice process to ensure their buy-in.
The guide was produced in association with Prudential.
Burrow’s top-tips for retirement planning
The key to make good decisions is to involve clients in the advice process.
- Don’t overload them with information – only give what is relevant
- Make it easy to compare and contrast different options
- Go the extra mile to make sure they understand all the risks
– Don’t be frightened of making things easy to understand and remind clients that in order to make things simple you must have a deep understanding of the subject in the first place
– Annuities may be less popular but that doesn’t mean they should be ignored and responsible advisers should always keep an eye on the annuity market. This is especially important in later retirement as the benefit form mortality cross subsidy increases and the effects of mortality drag become more significant.
– It is good practice to look for times when the value of a drawdown plan has increased and annuity rates have also increased. This may be the time to consider locking into an annuity.