Financial advisers must understand their respective practices will face increased pressure and industry disruption if they fail to properly account for the fundamentals of client longevity.
This is the view of Russell Investments managing director of strategic business initiatives Tim Noonan, who adds that advisers too caught up in fintech or regulatory disruption will miss the key role of providing financial security for clients.
The US-based Noonan will be in Sydney on Thursday to present at a Netwealth CPD event which aims to discuss the broad theme of financial planning beyond 2020. Also presenting will be Netwealth head of technical services Keat Chew.
"Conventionally when disruption is mentioned people make it out to be fintech related. While there's definitely that dimension to it, it's the lesser disruption," Noonan said.
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"The greater yet less recognised disruption is failing to understand what is happening to longevity."
He said there needs to be a strong focus on the actuarial probability of clients living far longer and spending far more than projections.
The wealth expert said there is an abundance of evidence to suggest the way advisers discover important information about clients "is still astonishingly superficial." He adds this discovery is overwhelmingly oriented around dropping a client into a risk bucket to make a model portfolio selection.
"Even when financial planning is done, very often the clients have a relatively light understanding of the plan and what their duties are - particularly in the areas of restraining consumption," Noonan said.
If advisers don't address this issue they will end up with a "grainy" client book. It will also be an increasingly less affluent book "who will spend zero and will get mad at you and take the enterprise value of your firm with that."
Noonan said most conversations are academic until an adviser can answer the question whether his or her client has enough for retirement.
"What the GDP ratio is in China is an important question but probably way less important than finding out if somebody is a little underfunded or massively overfunded," Noonan said.
He added advisers need to "hit the pause button and take a strategic step back" to ask themselves what they are really prepared to do to make sure they're creating financial security for clients.
You can register for the Netwealth CPD event here.