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Step Away From the Abacus… and Get to the Heart of It Instead

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Life is full of surprises. Or so we’ve found at this year’s seminal financial services event, the FSC Annual Conference. Forget analytics, actuaries and accounting: discussions instead go to the literal and figurative heart of Australia’s future wellbeing and our industry’s role in supporting it. Here are some highlights to date.

This year’s conference is all about our shared future, as captured by its “Visualise” theme. Implicit in the proceedings to date is the recognition that, as a nation, we’re at (or even past) an inflexion point in our goal of securing long term financial wellbeing for our populace.

Rising to the challenge posed by this will require new ways of thinking, courage and, above all, positive action.

Doing as we’ve done in the past will no longer cut it.

Enter the theme of heart and the need to understand and serve the very real human needs of the individual if we’re to achieve that bigger picture goal. We’re talking real people, with real lives, real aspirations and real fears. It serves all of us well to step back from the abacus and take a moment to appreciate the granular and its role in creating the whole.

And it doesn’t get any more real or more human than journalist Peter Greste, who, released from his 400 days in an Egyptian prison shared with a rapt audience insights into staying sane, productive and positive against the kind of adversity that the vast majority of us can only … barely … begin to imagine.

Against this uplifting and inspiring backdrop, conference attendees have been treated to lively and vital discussions that zero in on the big issues: sustainability of retirement incomes; engaging Australians managing their own financial futures; the true impact of life insurance on ordinary people’s lives and so much more.

Our industry has never felt more relevant.

Take the next super challenge: decumulation, a.k.a how we are to deal with people taking money out of super when the primary focus to date has been putting money in? The real issue here of course is the unhappy conjunction of an ageing population, inadequate retirement incomes and a diminishing tax base. So, relative to the size and importance of the issue have we really done it justice, with enough lead time, as an industry?

The first keynote event saw futurist Mark McCrindle, Insight Economics director, Michael Keating and Vanguard’s Asia Pacific head of Investments, Rodney Comegys, tackling this question. A key focus? The risks inaction poses to future living standards (you see the human theme here, living standards?).

Rodney Comegys, when pushed, agreed that it may be because Australia is good at retirement income saving as a nation, that we’re not particularly engaged as individuals, either as potential retirees or industry participants thinking about the future.

Somewhat surprisingly, in answer to “should we move to 15% SGC?”, one of the founders of the super system, Dr. Michael Keating, says no. In fact, even 12% could be too much, in Keating’s view. Accumulation is working well, he says. It’s the decumulation piece that’s now the priority (there’s that inflexion point again).

Are we, as a nation, innovating retirement income products well enough yet? Always room to improve, was the diplomatic answer from Vanguard. A ‘layer’ of different options is needed. Once upon a time you retired with a single fund. You chose the asset mix based on your own views about investing or as advised to. Now it’s not that simple, so alternatives that provide for a range of contingencies might be smarter – funds of different types, combined, perhaps, with deferred annuities, longevity insurance, mandatory payout funds – and of course a well-defined spending policy that doesn’t have to radically adjust to differing investment returns but offers flexibility to dial up or down based on changing circumstances.

When should planning for all this start? In our 30s and 40s.

Which brings us to another key challenge: how to get us engaged enough in all our financial activities to make a difference and set ourselves up for life.

Enter life insurance veteran, industry guru and bestselling author Joe Jordan with some insights that caused us to really step away from the abacus to get to the heart of the matter.

Because, Joe suggests, people have dogged, ill-informed views of what insurance actually does – or doesn’t do. And we are wrong to focus on the facts, rather than the emotions around insurance.

We’ve spent too much time, in financial services, on the analytics, says Joe. What we haven’t spent enough time on is understanding how consumers think. Accept this, says Joe:

  1. The way people make financial decisions has not changed
  2. The way we perceive how people make decisions has changed
  3. Expectations matter … perhaps more than actual outcomes

To bring this back to the issue of long term security in retirement, it’s reliability of income not return on investment that will matter far more to consumers.

As an insurer, Joe says, what MetLife does is simply this: help people have certainty around their income. That may be by replacing it if they die or guaranteeing it if they are sick.

His research shows that finding out people’s personal priorities (there’s that human theme again) is far more important than presenting rational, fact-based information showing the lump sum amount a policy may deliver. He presents a great case for actually never talking about the ‘face’ amount of a policy, but rather the income it will deliver, and at what cost.

Having voiced our personal priorities (looking after our family, paying off the mortgage, allowing an income for life if we couldn’t work) we are far more able to estimate what we really need from our insurance as an income stream, not as a lump sum. (And please note – these principles apply equally to super.)

So, says Joe, if you’re going to sell protection products you have to develop a culture that’s supportive of understanding people’s real needs. A culture where people are inspired by the great good that comes from insurance. That passion will translate to better business results.

Further, as a matter of culture, we should celebrate the impact of what we do on someone else. Everyone wants to celebrate the significance of what they do. And the significance of what life cover (and here, read super too) can do is literally life changing.

Focus your own people on that, and the business results should follow.

It’s a salutary and inspiring lesson and one, if learned, that could change the shape of our nation for the better.

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