When advice trumps product
Advice will trump product in gaining cut through for guaranteed solutions in the Australian retirement incomes market, according to Milliman principal and senior consultant, Wade Matterson.
In a paper written for the Actuaries Institute, Matterson points to the chequered success of guaranteed products in Australia but argues that lessons have been learned and that the experience is likely to be better in the future.
And a part of that better future involves advice, he said.
"Historically, the success of a product could simply be determined by the level of commission it paid to the adviser responsible for the sale," he wrote. "Over time, as regulators in various markets have focussed on shifting the advice industry to fee for service models, this simple tactic has lost its effectiveness."
Matterson said that, instead, successful organisations had begun their product development activities by focusing on the underlying advice process and "then developing an understanding of how to design and position their solution to leverage the inherent inertia present within financial advice models".
"For example, the risk profiling process adopted by the majority of advisors (and often required for compliance purposes) ensures that clients are allocated into conservative, balanced, growth buckets. The majority are then provided with an asset allocation or model portfolio that is aligned to this risk profile. This simple activity negates the ability of advisors to ascertain the value of a guarantee, which often sits outside this simple framework."
Matterson said that more recently, the Australian market (along with others) had begun to see a shift towards what has been loosely termed "objectives based advice" which had the potential to incorporate greater sophistication beyond relatively simplistic risk profiling to include elements of stress and scenario testing.
"This has the potential to open the door to the inclusion of a broader range of risk management and guaranteed solutions," he said.
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