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Good advice key to solving longevity risk

The provision of quality advice on a retiree’s drawdown is vital to address the challenges posed by growing life expectancies, according to Vanguard Investments.

Speaking at the SMSF Association 2017 National Conference in Melbourne today, Vanguard global chief executive and US Investment Company Institute chairman Bill McNabb said that many product providers were grappling with designing new products to help clients gain greater comfort with their retirement income and their ability to draw down funds in the future.

McNabb explained that any product approach must effectively be anchored in a goals-based delineation of an SMSF trustee’s retirement goals that would help prepare them for the long road ahead.

“No one has come up with the holy grail of products yet on this side. Everyone talks about potential product solutions but I don’t think that’s where the answer will be,” he said.

“I think the answer is advice and I think it’s more sophisticated advice around driving strategies where you really do the math for your clients.”

SMSF Association chairman Andrew Gale advocated in favour of further product innovation geared at helping SMSF investors navigate through the difficulties of the post-retirement phase by having a balanced approach towards securing their retirement futures.

“One of the big issues for the SMSF sector is the significant shift into the post-retirement phase, with the number of SMSFs that are already in drawdown mode dealing with sequencing risk, longevity risk and the like,” Gale said.

“I think a lot of the debate still prevailing at the moment is overly simplistic: what are the appropriate portions of growth and aggression needed in a portfolio and it doesn’t need to be in a ‘biased’ approach towards planning for the future.”

As more and more retail investors transitioned from accumulation into retirement, one way Vanguard sought to address their changing drawdown needs and demands was with the launch of a new advisory service in the US in 2015, which combined personal and automated advice.

McNabb said the success of this robo-hybrid model was seen with the inflow of approximately $60 billion of client money moved into the platform by investors in the first 20 months and almost half of this was in the drawdown phase of retirement incomes.

“A third of our business is direct to consumer – that’s 7 million investors with a $US1.5 trillion in pooled savings getting us to help them look after their portfolio [but] that group is beginning to age and is in need of a lot more help,” he said.

“This is where the software that we’ve built and the services that the advisers provide broadly really come to the fore [because] you can make a huge difference in somebody’s standard of living just by intelligent drawdown.”

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