Does Asia have a retirement problem?
There is a significant difference in perception between Asian investors and their financial advisors as to whether the region has a retirement problem. This is a key finding from a survey of more than 3,000 investors and advisors in Hong Kong, Taiwan, Japan and Singapore about their approach to retirement planning.
As Asia has relatively few robust retirement systems, many markets will struggle to provide adequate pensions, putting greater onus on individual savings, particularly as populations live longer.
While governments are focusing on reforms that can improve long-term outcomes for retirement income, awareness is growing among investors that they may be left on their own to finance their later years.
So J.P. Morgan Asset Management undertook a survey to get a better understanding of the challenges and opportunities when it comes to investment solutions for retirement. The findings suggest that financial advisors have a major opportunity to step into the gap to help clients plan for retirement.
Investor awareness rising
It turns out that individual investors are more aware of the urgency and importance of this situation than their financial advisors may realise.
Eighty-one percent of investors surveyed said they think about retirement planning and 71% said saving for retirement is a financial priority, suggesting that the issue is indeed top of mind for them. More than eight in 10 investors (85%) said they would like to turn cash balances into investments that can generate growth and long-term returns for their retirement.
However, just 44% of financial advisors said they conduct retirement planning with all of their clients.
It is not entirely clear why this misconception by financial advisors is so commonly held, but it does suggest there is an opportunity for greater engagement on the topic.
Perception gap on retirement goals
Interestingly, there are also meaningful discrepancies between advisors and investors when it comes to how they think about and achieve retirement goals.
Financial advisors and investors both say a regular income stream is their top priority in retirement investments. But whereas 73% of financial advisors think investors want guaranteed features, investors actually put high growth potential for long-term investment as a much higher priority.
In fact, 85% of investors think mutual funds have a role to play in helping them with retirement investing. This is despite 74% of financial advisors thinking their clients would prefer to be in cash, bank securities or properties.
Meanwhile, despite Asia’s relatively significant historical reliance on insurance products for savings and investing, investors are uneasy about putting all their eggs in one basket.
Ninety-four percent of financial advisors report that they usually recommend insurance products to clients who are interested in retirement planning. But 90% of investors do not think insurance alone is sufficient for retirement and believe that investment options are also needed to accumulate sufficient wealth to fund their spending later in life.
Role for government and industry
These results are clear evidence that Asia’s burgeoning financial intermediary community has an urgent opportunity to better connect with their client base, particularly as an ageing population needs to navigate retirement considerations.
Financial advisors could be missing a chance to grow and expand their client segment, and there is a significant need for greater individual planning for retirement security. An important task for Asia’s financial advisor community is to help investors make mutual funds work harder and better for their retirement.
Asian governments also have an important role to play in putting in place long-term, coherent pension policies that encourage individuals to increase savings. Behavioural tools like tax incentives, employer contribution matching and automatic enrolment programmes often work well and encourage greater personal responsibility.
Asia’s fund industry is historically known for being prone to higher turnover, with investors taking a short-term, trading-oriented approach. But as Asian investors look to a future of financing their own retirements, advisors can help their clients stay on track by taking a more consultative, outcome-oriented client interaction and look to stay invested for the long term.
Moreover, to aid advisors in structuring and framing thematic retirement planning discussions that are truly outcome oriented, asset managers should provide them with the tools to facilitate and guide conversations.
Asset managers can help reframe the retirement conversation and focus on the actions that matter to individuals over the long term by creating a plan, prioritising their goals and choosing a disciplined investment strategy designed for their investment horizon.