Canadians want a guaranteed retirement income and are willing to pay for it, but many advisors don’t discuss it with their clients.
IN a 2016 study commissioned by the Canadian Council of Public Pension Leaders98% of respondents said that a lifetime income was desirable, and 91% were willing to contribute more to ensure that income.
That’s not surprising, given that running out of funds in retirement or not maintaining a desired standard of living are common client concerns that advisors can help alleviate through effective retirement income planning, said Peter Wouters, director of tax, pensions and estate planning services at Empire Life in Toronto. Wouters was a presenter on Thursday at the Independent Financial Brokers of Canada Spring Summit.
He cited many reasons why customers fear they will outlive their money, including increased longevity, potential illness and related costs, lack of defined benefit plans and market volatility. Guaranteed income provides a solution because it alleviates worries not only for the client but also for their spouse and adult children, he said, and it also simplifies financial management, which can be important as clients age.
However, many advisors do not engage in conversations about retirement income planning or establish planning processes, and fewer than one in five Canadians have a retirement income plan, Wouters said.
As stated, conversations about retirement income typically focus on savings withdrawal rates 2018 Canadian Guaranteed Lifetime Income Study. However, clients would be happy with a longer conversation: The survey also found that 73% of Canadians say advisors have a responsibility to discuss guaranteed lifetime income. Failure to do so would be a reason to consider changing the advisory relationship, respondents said. Wouters emphasized this point: “Lack of discussion is a reason to change advisors,” he said.
But he assured advisers that planning for retirement income doesn’t have to be complicated. For example, a common approach is to combine guaranteed income with recurring expenses. “Ditch the acronyms” and speak in simple language, he said.
This advice is especially important because the way advisors present products influences customer decisions. While 70% of customers with guaranteed lifetime income products are satisfied with them, 41% are less interested in the products when they are labeled as income annuities or segmented funds, Wouters said, citing a 2018 study.
To help clients make informed decisions about guaranteed income, advisors were challenged: “How well do advisors understand income annuities and segregated funds?” Wouters asked. “How well do you understand where, how and when they fit and how to combine them with other solutions?”
Supporting clients’ financial literacy is part of the advisory role, he added, citing StatsCan data referenced in OSC’s Seniors Strategy report, which shows older Canadians have poor financial literacy compared to younger demographics.
Counselors should also pay attention to gender differences when educating clients, Wouters said tests shows that less than 50% of women trust the quality of the advice they receive from advisors, which is a potential precursor to loss of client relationships.
The positive side is that the challenges of retirement income planning present an opportunity for committed advisors, he said.
Among the tips he gave was a method for assessing the amount of guaranteed income a particular client needs: Forgo rules in favor of asking the client questions about things like risk tolerance and longevity potential.
“Focus on the process, not the percentage,” Wouters said. “Your call to action is to discover and re-examine what is important to your customers (…) and determine the right amount of guaranteed income to provide them at every stage of their lives.”
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