The supposed goal of the personal financial planning industry is to help their customers collect enough savings for a financially independent retirement.  In 1977 the then largest life assurance company in SA announced that only 5 percent of retirement fund members would be able to retire with financial independence.  In November 2018 Alexander Forbes reported that their estimate was 5.17 percent.  That’s no effective improvement in 41 years.  Or at least no effective improvement for the end user.  Almost everyone else in that value chain has prospered mightily.

The system isn’t working too well for those it purports to help i.e. the worker.  Isn’t this time for a rethink?  It seems that the old saw about the objectives of all participants being aligned is wrong.  To achieve such poor results for the end user, the objectives must be seriously out of alignment.

I have been in this business for a very long time, since 1977 in fact.  And I have seen very little by way of practical change taking place in that time span.  There has been lots of re-arranging of deckchairs (as on the Titanic) but clearly to little effect.

Most of this change has been around more sophisticated financial products and investment portfolios.  We are seeing the advent of more fintech (financial information technology) which is clearly exciting for those involved.  But the customer seems not to have benefitted much.

The causes of these problems are not hard to find.  People aren’t saving enough and they are often not retaining their savings when they change jobs.  High investment, advice and administration costs divert a significant part of investment earnings away from investors.  Some interesting issues stem from these.

Because most individuals are generally regarded as mentally challenged by the industry when it comes to retirement preparation, they are not taught the mechanics a) of investing and b) of sensible practical planning.  We can sum that up by understanding that educating people in these mysteries clearly threatens some part of the financial services industry.

This means that even if the most fantastic IT systems can give you a balance on your retirement annuity at 03h00 hours while flying to Nova Scotia, what are you going to do with that?  A particular employer with 400 employees who are all members of their retirement fund has trouble understanding why only 11 staff members have ever actually looked at their values in four years.

When people have had some education and a plan, they are able to develop an understanding of where they are headed.  By monitoring their results regularly and comparing them to targets that mean something to them, they can see whether or not they are on track.  When they are ahead of their targets they can celebrate, when they fall behind, they know to increase their savings.

Not having measurable objective goals means that most individuals are drifting along hoping that everything will turn out well for them eventually.  But knowing where you are going and how well you are doing on the journey is a real motivator.  If you can do that yourself, without a translator, you take control of the process.

Clearly the existing system has failed the end user.  It is extremely satisfying to see individuals having that “Aha” moment when they get the message.  Many have made enormous strides once the understand how things actually work.

Sadly, the term “retirement planning” has come to symbolise selling investment products.  Real financial planning is incredibly rare.

We help people draft and monitor their own plans and we have seen many miracles.

Dave Crawford CFP ®
23rd April 2019