I look at the Election of Trump and BREXIT as symptoms of systems that are not working for the majority of people. It is clear the outcomes in both instances are a not the final solution, simply a step in the process to new systems; hopefully more flexible, dynamic and representative of the needs of the people.
It makes me think of other systems I have felt uncomfortable with. As my 18 year daughter sits matric this year, I think back 12 years.
At the time, in 2007, I was not sure that the education system was set up to deliver the best outcome for my little future-woman (or her parents). The system looked and felt like the same as the one I had gone through in the ‘70s and ‘80s. The education system had not, and has not, evolved even though the world feels and looks quite different in many ways from my youth and from when the Victorians invented it in the 1800’s. You know the list of what is different now..…. Technology & Artificial Intelligence, longevity and improved health, flexible and collaborative working methods – all leading to new business models, and new opportunities for people to work and contribute.
So, education feels like one system ripe of renovation to make it more relevant. That is a story for another day. But it does make me question what is holding back the evolution of other systems and how their challenges are similar?
I see parallels in Financial Services. I see the legacy of institutions controlling the status quo and the narrative on what is normal; I see regulatory oversight attempt to maintain minimum standards and to retain trust and confidence. My concern is:
Is the system serving the people or, in fact, is the system even solving the right problem?
Speaking to one experienced and successful planner yesterday, he said his client’s children (millennials) don’t relate to the two underlying pillars of the current system and legislation – the retirement concept and the single career concept.
Over the years there have been a few tweaks to the system with products that are more portable or lower cost but largely the retirement and financial services system is still promoting a ‘fear and anxiety’ model of not having enough money for when we are old or can’t work any more.
Relatively unsuccessful attempts to educate and motivate the public include –
- Financial marketing and literacy programs; often product-focused, leading to the perception that “the industry can’t help you unless you buy a product”; and
- Treating Clients Fairly Legislation – as good as it is – speaks to the client being a potential “victim” of the current system
So all-in-all, not an ideal cocktail for the public to engage with the current model.
For the majority of people, it is a system that is not delivering “Retirement Outcomes”. In 1977 in South Africa, only 6% of people had saved enough to maintain their lifestyle in retirement. That number is still 6% today.*[source to follow]
There are new proposed legislative changes tasking Company Human Resources and Group Scheme Trustees with the responsibility for impacting staff and member “Retirement Outcomes” due to take effect in March 2019. Initially, that change will look like including new product options for retirement – a Living and a Guaranteed annuity product option, into the suite of Corporate and Industry Group Schemes. The problem is that there are no indications of a solution that will be providing more options, or that education alone is going to change outcomes.
So, maybe time for a complete rethink.
But first, a history lesson to understand how flawed the current rationale is around retirement…
Why are “we” here?
Until now the Investment and Pension Industry has narrowly defined the problem as one of not having enough money at some distant age which was determined by a historic anomaly as 65. Yep, Emperor Bismarck in Germany, decided in the 1870’s that state pensions should start at 70, even though the average life expectancy at the time was 62. So, if you got a pension– it was a reward for not being dead already. This perception was instilled even further in Teddy Roosevelt’s new deal in the 1930’s during the Great Depression in the USA. This deal included a social state pension to supplement savings for pensions over 65, and at that time life expectancy in the US was 58.
Since the 1950’s the over-65 year old workforce participation rate has fallen dramatically mainly because the life expectancy has been increasing to over 80 in the developed world and because the growth in the idea that retirement is a “right for all”, as a reward for years of hard work. The reality for most people is: you can’t study for 12-15 years; work for 45 years; and live for 35 years more on the savings – even with the best savings plan and market returns.
So, the question is:
“Is the Financial Wealth,
Savings and Investment Industry selling the wrong dream and/or possibly just attempting to solve the wrong problem faced by most people?”
Add to this a loss of confidence in financial markets to deliver high equity market returns in the past five years, plus a few public stories about poor advice or service from financial service providers – the potential answer means … you can easily argue that our Financial System that needs reimagining.
Fresh Pair of Eyes
It is fair to assume that the bulk of the Financial Services institutions, and the regulations that govern them, are very focussed on preserving and enhancing what is in place and avoiding risks of reputational damage resulting from poor service delivery to the public.
I am curious to know everyones’ thoughts to the following questions (in addition to the 2 above) :
- What public good is expected or intended from the current Financial Services Savings and Investment system?
- How does society define success in this industry for the beneficiary?
- Does the industry admit that they are no longer in the business of selling “retirement savings” as the target end-game of financial planning?
- What is the new proposition to the client, and is there just one proposition?
- Could the industry’s responsibility be to help clients articulate and recognise their aspirations (and limitations); advise them on financial tools and plans to achieve those dreams; and then journey with them in such a way that helps them integrate and sustain a financial plan approach that is centered around their life as it changes and evolves?
- If the public and other industry stakeholders want to change the Financial Services industry – what would represent a high quality process model for change?