Canadians want guaranteed retirement income and are willing to pay for it, but many advisors aren’t discussing the subject with clients.
In a 2016 survey commissioned by the Canadian Public Pension Leadership Council, 98% of respondents said a lifetime income was desirable, and 91% were willing to contribute more to ensure such an income.
That’s not surprising, considering that running out of money in retirement or failing to maintain a desired standard of living is a typical client concern — one that advisors can help relieve through effective retirement income planning, said Peter Wouters, director of tax, retirement and estate planning services at Empire Life in Toronto. Wouters was a presenter at the Independent Financial Brokers of Canada’s (IFBC) spring summit on Thursday in Toronto.
He provided plenty of reasons why clients fear outliving their money, including increased longevity, potential illness and associated costs, a lack of defined benefit plans and market volatility. Guaranteed income provides a solution because it eases worry for not only the client but also their spouse and adult children, he said, and simplifies financial management, which can be important as clients age.
Yet, many advisors don’t engage in conversations about retirement income planning nor establish planning processes, and less than one in five Canadians has a retirement income plan, Wouters said.
Retirement income conversations typically focus on withdrawal rates for savings, found the 2018 Canadian Guaranteed Lifetime Income Study. But clients would welcome an extended 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 advisor relationships, respondents said. Wouters underscored the point: “A failure to discuss is a reason to switch advisors,” he said.
Yet, he assured advisors that retirement income planning needn’t be complicated. For example, a common approach is to match guaranteed income with recurring expenses. “Lose the acronyms” and speak in plain language, he said.
That advice is particularly important because how advisors present products affects client decision-making. While 70% of clients with guaranteed lifetime income products are satisfied with them, 41% are less interested in the products when they’re labelled as income annuities or seg funds, Wouters said, citing the 2018 study.
To help clients make informed decisions about guaranteed income, advisors were presented with a challenge: “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 you package them together with other solutions?”
Supporting client financial literacy is part of the advisory role, he added, citing StatsCan data referenced in the OSC’s seniors strategy report that found older Canadians have poor financial literacy relative to younger demographics.
Advisors should also be sensitive to gender differences when educating clients, Wouters said, because research shows less than 50% of women have confidence in the quality of advice they receive from their advisors—a potential precursor to lost client relationships.
On the positive side, the challenges around retirement income planning present an opportunity for committed advisors, he said.
Among the tips he gave was a method to assess the amount of guaranteed income a particular client needs: forgo rules in favour of asking client questions about such things as risk tolerance and potential longevity.
“Focus on process, not percentage,” Wouters said. “Your call to action is finding out and revisiting what’s important to clients […], and setting up the appropriate amount of guaranteed income to support it, at each phase of their lives.”