- Super industry is product led, not client led.
- Retiree-centric solutions for the long term are needed.
- Public must become more financially educated.
It’s rare to hear a ‘wake up’ call from within the wealthy superannuation industry.
Billions of dollars are being invested, so why change what seems to be the standard position?
Amara Haqqani, who has previously worked in super and pension policy, wrote earlier this year about her criticism of a sector she says has lost sight on its clients … retirees!
This excerpt from an article Ms Haqqani published in Firstlinks newsletter sums up her position ie. that the super industry is asleep at the wheel:
“The superannuation industry and its policymakers need to turn product thinking on its head. Retirement will only succeed in this country when we genuinely put the retirees ahead of the products, we’re trying to build for them.”
“Products only help answer aspects of retirement problems, they don’t replace them entirely.”
“Retirees need very basic help that we neglect to provide - help on budgeting, on the Age Pension, on building their retirement context. Products come after we help them and give them comfort and guidance.”
A colleague told me at the beginning of my retirement journey, that this is an industry where we like to make products that we want to sell, not that people want to buy.
His throwaway line has proven true, and the evidence of it is everywhere. We remain one of the few industries left on the planet that isn't client centric, most likely because we haven’t had to be. We’ve had compulsion and information asymmetry and general all-round apathy working in our favour. The groundswell against this movement is already everywhere you look - from the surge in ETFs to the recent GameStop trading event.
The issue is much more acute in retirement strategy. The answer to retirement working in Australia is not the creation of more product ‘innovation.’ It’s not making them mandatory in regulation. It’s not forcing funds to create products today that will become tomorrow’s legacy product. It’s not attacking account-based pensions when they’ve done nothing wrong in isolation.
There are some fundamental things that need to change before mandated retirement products will work. Trustees may be required to have a product on the shelf for members, however the take-up may be low at best, or members will mutiny at worst, until some key issues are fixed.
Retirement isn’t a product problem, it’s also not just an advice problem, nor is it just an investment problem and it’s definitely not just an engagement problem either. In my experience it’s all of them at the same time.
We have a long way to go to overcome this issue. Retirement cannot be solved in silos.
Funds particularly need to bridge internal function lines, in order to deliver retiree-centric solutions that work and are taken up over the long term. Until retirement is treated as seamlessly across a super fund as accumulation is, we cannot say that retirement is done well for the members.
It’s clear we live in an era where the member-investor craves transparency and simplicity. They don’t value things they don’t understand and there is the meta-trend of the reduction in value placed on experts.
Products that present as ‘black boxes’ are now largely mistrusted and the ‘smartest people in the room’ affliction we have in the finance industry as economists, actuaries and investment professionals, must give way to understanding that no one out there cares how smart you are, if you can’t help them in a clear and efficient way.
The problem with most retirement product innovation is that it's hard to do while still being simple or transparent. Any further pushes for the industry to innovate, will drive corresponding legacy product proliferation as products become harder to sell, regardless of how perfect they are on paper.
We really shouldn’t find hard-to-explain products like annuities all that much of a ‘puzzle’ in this day and age.
Finally, the Australian public is not interested in consuming their hard-earned capital. After all, they’ve had generations before them demonstrate that they can preserve their capital and live off the income.
If policy makers want a shift in behaviour in line with changing economic conditions, there needs to be a mass-scale level of education done and awareness raised on this topic, else all policies and products that attempt to tackle it will be rejected.
Let’s not build retirement products because we have to. Let’s put the member at the centre of our systems, our thinking, our regulation and our offerings. Put product last. If we do, this time it could actually stick.