I was interested to read an article on the Money Marketing website by Ian McKenna recently headlined, ‘Who will crack the tech advice conundrum?’ I added a comment to this blog but for those of you who are not avid readers of MM blogs, I said that although I write my own code and calculators I still struggle to design anything that really helps with decision-making about annuities or drawdown.
It is easy to write good content, explaining options and calculating annuity rates but it is much harder to deal with online advice. Before I go any further, it will be helpful to define what we mean by advice. This is more than a play on words because we all talk about advice but very few people can articulate what it looks like to the client. From a regulatory point of view, advice includes “making a personal recommendation” – ever tried doing that with technology?
From the customer’s point of view, advice can simply mean help. It is possible for customers to think they have recieved advice when the company they have been dealing with has not given advice and does not offer any to customers.
It makes more sense to think about logical decision-making process because that is what most people should be doing. For example, if a customer says: “I want to get my pension income at age 60 but I am concerned about low annuity rates and don’t know what my income requirements or personal circumstances will be in the future,” it seems logical to invest in an annuity or pension drawdown that provides flexibility.
Now technology is good at the logical stuff but what about the non-logical stuff? Let’s not forget most of us are not logical. I remember hearing David Davis MP on Desert Island Discs saying: “Every decision has an analytical part and an emotional part. Get the analytical part and it makes the emotional part easier.”
Most clients are not able or prepared to do the analytical part before their emotions take over. Those familiar with behavioural finance will not be surprised that when faced with an option that pays the highest income now but remains static or an option that pays a lower income but has the potential to pay more in the future, most people go for the highest income option.
One of the advantages of speaking to a retirement income specialist is that they can help clients take a longer-term view of their income requirements. Clearly, technology can help with this, for instance, by modelling the future effects of inflation.
However, we are back to the problem of how do we help people deal with the emotional side of the annuity or drawdown decision?
I describe many of many clients as being like windscreen wipers. On the one hand I think I will just invest in a guaranteed annuity. On the other hand maybe I should have some flexibility after all.
Personally, I think annuity and drawdown decisions will be one of the last bastions for personal contact in financial services. This does not have to be face to face because telephone will do, but I do not think this can be done online.
I have some good ideas for an online retirement windscreen wiper. Anybody want to help me develop it?
Billy Burrows is director at The Retirement Academy