Challenging times and financial advice

YourLifeChoices podcast co-hosts John Deeks and Kaye Fallick speak with Aaron Minney, head of retirement income research at Challenger.

What we need is a plain English explanation about financial advice.

Aaron Minney: A lot of people get scared when it comes to income in retirement. We see people get worried about whether their money is going to last. And when the market had that big dip on the back of COVID, people started to panic and were asking, ‘Well, what does that mean for my money?’ This is where a bit of advice can be really helpful.

We saw markets go down pretty dramatically in March, and a lot of those losses have been made up. But generally, 2020 has been a difficult year. What would you say are some of the key concerns for retirees?

It depends on how you want to look at that one because retirees worry about things other than their finances, most of the sensible ones probably worry about other stuff like health and family a lot more. But if we narrow it down to money, it’s really about making sure they have enough money for today and for the future. Because a lot of retirees still have a long time to go.

It’s actually quite a difficult problem to get your head around sometimes; knowing that you’re just reliant on the market can be a bit scary. But if you have a good plan, you can sort of be comfortable with where you are, and I think that’s the key.

YourLifeChoices research shows that when people talk to a planner, they’re generally very happy and feel that they’re better off. But there’s that stubborn 40 per cent or so who won’t go to an adviser. What kind of retirees do choose to get financial advice?

Sometimes it’s just wanting to be in a better place, and one of the things I see in the research is those who have a good plan are actually much happier and much more confident and that’s unsurprising. Advisers are sometimes called financial planners, and most advisers will help you put that plan together. That really works across the board. You tend to think of advisers as only the highfalutin sort of the wealthy guys out there. There are some that work in that world, but there are others who work across the spectrum. Even some of the super funds have their own advisers.

This latest research we’ve seen, people who didn’t have that much – a couple of hundred thousand dollars maybe – are still unsure about what it [financial advice] is, so a little bit of advice can go a long way.

Members tells us that the rules relating to the Age Pension and entitlements and how that works with superannuation or a product like an annuity are less than clear. Is that fair?

It’s certainly not easy for people to understand… The challenge is, how does it fit together? Your good advisers will know in some sense what are actually quite simple solutions. But like a lot of good solutions, they might be simple, but until you know what they are, you can’t do a damn thing about it.

When somebody comes to Challenger and says, ‘I need advice’, what are the key criteria you’re looking for? What are the things that you like to know?

First, we can’t give them advice because we don’t have that licence. But we do try to find them someone who actually can give them the advice and understands what their needs and wants are after retirement. So it’s a sense of understanding really what that retiree needs and wants and being able to deliver that in a way that is easy for the client to understand. Too often you get big, complicated investment solutions, but it’s more about, ‘Okay, well how do I put the money on the table this week? And how do I have the comfort that if I need something in 20 years’ time that’s still going to be there.’ And that’s usually one of the number one worries about finances for retirees. It’s sort of like, ‘Well, I’m okay today, but what’s it going to be like in 10, 20 years’ time?’

And I can sit there and say that retirees tend to worry a lot, but the reason for that is they have the time to worry. And if you sit down and you’re not working, and you got a bit of time, your mind does tend to wonder and start to worry about everything. It comes back to the recent research, those who have had a bit more of a chat with somebody and got a bit of advice, they seem to feel a bit more settled as they have a plan and can see that they are on track. Part of the plan is that markets always go up and down and you can’t avoid that, you can’t get away from the market volatility.

So the idea is to have a plan, so you know what happens when the market goes down, and you don’t panic. Because that is usually the wrong time to do something.

The elephant in the room here is trust – trust in financial advice. We know a royal commission really highlighted the fact that a lot of people who were concerned had good reason to be concerned. Do you think those days are behind us? How would you tackle maintaining trust?

Having seen the rawness of some of the practices that we’ve seen, it might take a while for some people to trust. We all know trust is built up slowly and goes quickly.

You need someone who is, first of all, relatable and understands what you’re talking about. That’s one of the best indicators of trust. So from an adviser point of view, you want someone who can sit down and understand what you’re talking about, understand in a sense where you’re coming from and is looking to find the solution that suits you best, and not necessarily suits them.

Is there a starting point, if someone is listening to you speaking right now and they think, ‘Okay fair enough, I really do need financial advice.’ Apart from their superfund, is there any other starting point for someone to get in touch with someone who can help them?

There’s a couple of professional bodies out there, so if you go out to the FPA [the Financial Planning Association of Australia], they have a list of all their members. They keep track of who’s up to date with all their training. ASIC [Australian Securities and Investments Commission] has a register as well, but it’s more about making sure that no one’s on the naughty list effectively. It just lists everybody on a map right there. Getting professional help, and the idea is to get a professional body that looks at that, depends on how much you’ve got and how much you can afford on the advice. If you don’t think you’ve got a huge amount, then I’d start with a superfund.

You can have a conversation there where you don’t pay for the first meeting?

Yes, they all have different bits. We talk about complicated retirement – there’s a whole lot of rules around who can give advice and what type of advice they can give, and what information is not advice. Hence my disclaimer at the start. But if you start with a fund, then you can pretty quickly figure out whether you need someone to give you more wholesome advice and get into the details. They’ll sit down with you and sort out the budget and put the plan together.

But at an early level, I know Challenger have put a lot of work into your website and you’ve got some apps and tools that are all about a confident retirement?

That’s right and there are a lot of different tools and guides to help you get an idea of where you’re coming from. The best thing about that is they help you prepare for talking to an adviser, because you know half the time people walk in to see an adviser and they don’t actually know what they need help with. So if you have a look, it’s called Retire with confidence and it’s about understanding how long you are going to need your money for? Because a lot of people don’t really understand how that stuff is going to work. But it’s all about sitting back and thinking about a plan. Well okay, you’re newly retired, say you’re 66, thinking about, what am I going to do when I’m 76? 86? What happens if I make it to 96? You know, some readers will have parents who are in their 90s so living into their 90s is a pretty strong probability for some people. And they just don’t have the head space to understand how much money they’re going to need then, or how much money they’re going to need now, in order to have money to spend later on. That’s what these Retire with confidence tools will help with.

Challenger is a preferred partner of YourLifeChoices.

Disclaimer: All content on YourLifeChoices website is of a general nature and has been prepared without taking into account your objectives, financial situation or needs. It has been prepared with due care but no guarantees are provided for the ongoing accuracy or relevance. Before making a decision based on this information, you should consider its appropriateness in regard to your own circumstances. You should seek professional advice from a financial planner, lawyer or tax agent in relation to any aspects that affect your financial and legal circumstances.