Strategies to Creating Certainty in Retirement #2 – Transcript

Jamie McIntyre
Hello, everyone, and welcome to episode two of the retirement podcast series. In today’s episode, we are going to talk about behavioral biases and retirement. Our guest today is James Wortley. James is the founder of enlightened financial solutions and video advice in Australia. He’s also a founding shareholder of Lumut referencing James LinkedIn profile. This is our winning aspiration for our client is, it’s about you living your best life. You work hard through your working life to get to retirement, and it is now that time for you to enjoy the fruits of your labor. Don’t leave a big lump sum of cash. So today, James and I are going to chat about biases and how they can impact retirement, the role of the advisor in identifying biases, overcoming them, and tailoring advice to clients with these biases. James wordly welcome to today’s podcast. Thanks, Jamie.

James Wortley
It’s good to be here with you. Yeah,

Jamie McIntyre
likewise, I’m looking forward to today. And well, let’s kick off today and start with coolant biases. And what are some of the biases that are common for clients as they move into retirement? In your experience, James,

James Wortley
or there’s an I did a little bit of chatting, I did say that you upfront that certainly chat, GBT has actually helped me with a few of these biases, just one of those ones that that we’ve always seen, but probably haven’t put a name around it. So probably the one thing that actually wasn’t in my list of 10 was longevity bias. And Jeremy, you might have seen this before as well, because when we’re talking about clients about how long your money is going to last, we talk about average life expectancies. But then I get a group of clients that say it doesn’t matter, I’ll probably won’t be here in 10 or 15 years time. So they’ve got that bias that they’re actually going to live in early life, whether it’s their parents that have passed early, or the life that they actually have led, however, that 65 years or 70 years, they’ve lived live life hard, and they just don’t expect expect that they’re actually going to live through to their life expectancy. That’s so I thought that was a really interesting one. Whether whether and the bias on the other side as well, is my parents are still alive, I expect that we’re going to live through to 100 years of age. So that’s a good one to start with.

Jamie McIntyre
Yeah, it’s an interesting one isn’t No, I experienced that as well, James, that’s for sure. And you’re right. I suppose you could dig into advisors bias, we lean into the life tables, and we talk to clients about, okay, we’ve got to get to there and 50% will die before that age and 50% will die after. So we probably have our own biases around longevity as well,

James Wortley
that we do we do. And the question that we always ask our clients is, okay, what happens, especially if you’ve got that bias towards living? Thinking, again, we’ll have an a pretty early life and and say 10 to 15 years, is what happens if you actually lived through to 85? What does that actually mean to you? And would you live life differently?

Jamie McIntyre
Yeah, well, well, that’s it, isn’t it? I, I suppose for those that think that they are going to die prior to the life table. And with that bias, we need to work around that and have a deeper conversation with them. About what I suppose we’re talking about the life table and the odds of them living to the life table. So we’ve got to tailor our advice around that as well, don’t we?

James Wortley
And this is where we change as financial advisors. It’s not just financial advice in relation to investment strategies or, or what we’re looking to do our retirement strategy as well. But but we then sort of talk about, okay, their health, what’s what’s actually happening from our health standards in today’s life, people living longer. There’s, there’s certainly cat people that do have cancer, a lot of them are actually getting through the cancer now these days, so. So I think that modern medicine, we’re actually talking a lot more broadly to our clients about about different types of issues that they will face throughout their lifetime. Yeah, I think

Jamie McIntyre
that’s an important theme for all client interactions, which are using air quotes. The industry doesn’t necessarily understand that every client or every coin, husband and wife or family is very unique. And they all have different needs, though. They are they’re similar do, but let’s talk about what’s number two on the list that

James Wortley
well, that was my number 11. So I’ll get back to it. So number one was present bias. So the bias involves giving more weight to immediate rewards and gratification into future benefits. People may prioritize current spending over saving for retirement, leading to insufficient savings and inadequate financial preparation for retirement.

Jamie McIntyre
It’s an indirect word is that yeah, I think I for me, that to me in well, I might experience that or how I have experienced that is those that are spending more than they earn and they they haven’t prepared well enough. Well, when I say well enough that from an asset pool they haven’t prepared well enough, but if They continue to spend on the same path, they’re in a bit of trouble, they’re going to run out of money as well, aren’t they?

James Wortley
Yeah, and that’s the one thing jam, I think, especially for us being being financial buyers for over 25 years, you just you see it so many times where the client might be living off, might be $150,000 a year, but their goal for retirement is to live off 60,000 or $70,000. So it’s a big cut. So for us, we need to make sure that we’re actually providing good advice to them having a good understanding with what are they spending their money on now? What will change? What will what will the tax implications be as well, so you look, you’re not going to be paying as much tax. But alternatively, this is the type of level of income that you’ll actually have. But understanding also, like we’re a little bit different in financial advice, we want them to live their best life, we’d love to be able to see everything they’ve actually earned, that they spend that money over their lifetime. Is that it? Isn’t it, your work hard all your life, you build up that nice little that nest egg, we want them to actually spend all their money through their lifetime. So it’s so so it’s work hard by heart? Letarte?

Jamie McIntyre
Absolutely. And if we all had that magic date of death, and you and I could plan exactly to it, we could do some amazing things there and make sure they spend every last cent right?

James Wortley
Yeah, yeah. And I think the other part to that is that generational change, and you see, with the baby boomers, a lot of baby boomers coming through now, but they still want to make sure that they’re actually leaving their kids with with substantial capital. I don’t know if you’re seeing that gentleman. But but certainly we’re, we’re still seeing that generation, whereas I think over the next 10 to 15 years, I think that potentially will change a little bit more.

Jamie McIntyre
I think you’re right. And that’s, that seems to be a bias in that generation, or the current generation that are retiring. And we’re really talking about those in their 60s to mid 60s, starting to meet with clients that are in their mid 50s. They’re building into retirement, and they certainly don’t hold that bias. They’re more of the view that will spend everything and they can, the children can get one half or 1/3 of the house. That’s let it’s starting to change, isn’t it?

James Wortley
And a lot of those. So for the baby boomers anyway, that brought up our early lives through the war period, and after the war, so they didn’t have a lot of money. So they were taught as young kids to make sure that when you spend money, you make sure that you’re actually spending on the right things. But they just didn’t have a lot. So I think what they were taught from their parents, they’ve actually learned that and then hopefully that they’re passing that on to their their kids as well. So that that next gen Gen X i sparked.

Jamie McIntyre
Yeah, the baby Bernard boomers were from the the generation of spend less than you earn, and make sure you tuck some away. And, and they were also forced to do that in some ways, because if he rocked up to the bank manager without some demonstrated savings, there was no hide loan either.

James Wortley
And I think this, where they were talking about this capital amount of money as well, like, and I could bring in my father in law as well. I’ve just saw them for their annual review. And, and he just wants to make sure he leaves all his money to the girls. He doesn’t want to spend any capital works, just the way is brought up and wants to make sure that that they’re going to be financially right, not only them, but also the grandchildren as well. So there’s actually going to be nest egg that passes through from generation generation.

Jamie McIntyre
Yeah, absolutely. That deferred gratitude for that generation is now not gratitude, but gratification, I should say. So. So moving on, what else? What are we got on? Number two,

James Wortley
from the amateur we’ve, yeah, we’ve got loss aversion. So a big one that we always deal with everyday. But this the way it states it loss aversion refers to the tendency to feel the pain of losses more acutely than the pleasure of gains, this bias can lead to overly conservative investment choices or retirement accounts, resulting in lower returns over time and potentially inadequate funds for retirement.

Jamie McIntyre
I definitely experienced this myself, James. And for us, I suppose it’s a broader conversation of how to work within that loss aversion framework. Look for us, and I think I spoke about this in an earlier podcast is the first most important thing we talk to clients about is having an amount in cash or the like maybe term deposits, and that amount should reflect three years of your spending, or there abouts. You know, that helps with that loss aversion conversation, doesn’t it?

James Wortley
It certainly does a good bucket strategy. It works really well. And what

Jamie McIntyre
other strategies view you implemented or work with clients on to help them understand loss aversion or, or put things in place that help them I suppose, remove that bias.

James Wortley
Yeah, and I think the other the other part to why they do have that bias is that work really hard all their lives, and they just don’t want to lose their capital or make sure that that their capital is going to last them through their lifetime. So there’s that real big worry for them. So yeah, I I think the bucket strategy always works really well. It’s actually understanding what clients want out of life. And this is the interesting part for our retirees is a couple things. Number one, want to make sure your your capital lasts through to retirement, or you’re happy to draw down that capital, what does it actually look like? What do you want your kids to be able to inherit? So it’s asking those really good questions on what the client wants, without any bias coming from us. And then sort of building the strategies around that. And, and for us, I know when projections, we’re not big ones, some projections, but we use them every annual review for our clients is, let’s have a look at the return on your investment. Let’s have a look at what’s the chances of negative returns. And we’re probably doing that more now, in the last six months, and we haven’t had before, just to make sure clients fully understand their risk profile. And what type of negative return you can have, again, probably throws in a little bit of a bias in relation to what where the economic world is today, where, where there’s a lot of talk about recession and going into recession. One of the things that we need to be able to do as part of us as a financial advisors, but then also talking to our clients about as well. So this real loss aversion. And, again, because we’ve been around a lot longer, we’ve been through the GFC as where we’ve seen markets for we’ve had a lot of people retire through that sort of 2007 A lot of the miners up here, but actually had some good capital in their superannuation funds, as she went back to work in 2008 2009, because they saw really big hits on their superannuation funds. So, so it’s probably something that we haven’t seen for a good, good 1516 years.

Jamie McIntyre
And that’s an interesting one for biases. For me, jackings, I kicked off 9098 99 So excited, experienced or came into, and back then it was an industry, not necessarily a profession, and came into it. And in the first couple of years six for the first year, we experienced amazing returns on things like tech and all that kind of stuff. And then learned pretty quickly that you can start to have a bias about those things. If you if you don’t look deeper into it, let’s call it average returns for sectors and things like that. We can also have a pretty big bias as well, and clients will come in with those biases, you know, my my friend down the street, he’s got returns on while in today’s market, it’s probably Bitcoin, right or crypto. So I think we need to be pretty cautious about that type of bias as well.

James Wortley
That’s right. And this way, the charts work really well over over the history of share markets since 1980. And taking it all the way to where it is today, making sure clients fully understand that there is volatility, but like always come back to that principle rule. Number one, don’t put your eggs in one basket, make sure that we diversify across those asset classes. And depending on what your risk aversions are, will depend on how much money we actually have in defensive versus growth assets. So so but they’re the core conversations that we’re having with our clients, and especially for retirees it’s it is they’ve worked hard all their lives to be able to build this nest egg that don’t want to be able to take too much risk and see it actually all back right really quickly.

Jamie McIntyre
Tell me James, what sort of feedback you’re getting from clients through this period of sub a bit resistant to this different type of information? Or are they bracing it? Or is it giving them more comfort? Tell me a bit more? Yeah, we’re,

James Wortley
we’re a little bit different that we’re aware of values based advice business. So when when we’re talking about strategies, we’re also talking about their life strategies, what’s really important in life, giving them full accountability of what the values are. And on another what had been the previous podcasts that you actually did, we’re actually talking about those people that are retiring, what are those things that they’re going to do, especially if you’ve worked all your lives, and then you actually then go back and your partner has been at home? Is the partner would like to be able to kick you out the door to say, okay, look, go on, find something else to do, and don’t come back into my little domain here. As part of my revenue, the retirement strategy, but yeah, so it’s really interesting. I probably have just lost a little bit of track there.

Jamie McIntyre
Now, I was born around, that’s okay, let’s say to bring us back on track. My question was what the how’s the feedback been from your clients with this focus on? You know, loss aversion and your focus on you know, markets can have downtimes?

James Wortley
Yeah, they take a well, but the thing is, when we really had those tough conversations, actually, when you’re going through a negative return a bit like even 2022, we saw negative returns, but they weren’t big blowout negative returns that we had through the GFC. And, and early 2000s, as well with a tech wreck. So So I find that that experience that we’ve had over those two hardship periods where you’ve got sell downs of more than 10% They’re the hard conversations that you need to be able to, that you’re having with your clients. So I think right now it’s okay, because the returns are actually been pretty solid over the last 10 years. It’s only when that consistency of negative returns start to come through. And then probably the other side to this also is, we’re now starting to see a cash rate jump up. So a cash rate being around about the sort of that five and 6% return, that sort of changes that dynamic on investment as well, where you can say, Oh, look, we’re not going to take any risk and still get 5% return, versus the share market that is a lot more riskier, potentially coming into a recession. And is our capital going to be there for that asset class,

Jamie McIntyre
preserving some more capital at this point in time, and I think the right word is taking advantage of that opportunity in the current market as well.

James Wortley
There’s, there’s an interesting, some research that we had in relation to just two different portfolios. But if they got the same returns, but they had an opposite ways round, would you would you be comfortable with your financial advisor as part of the strategy? And the answer, she came back to said no, because all those the retiree client that actually had a good amount of money, had a negative return right at the end and actually lost sort of with 30% of their capital at one period of time. So where the conversation probably would have been, okay, do you need to be able to take this risk? Your capital is actually grown really? Well. That’s another conversation that we should be having with our clients is okay. Do we take some risk off the table? Yeah,

Jamie McIntyre
definitely the world for us. We’re having those conversations as well. But taking some risk off the table. I think what we were talking about is well, and due to us both having a 20 plus years experience and those more significant GFC type events. When we reference negative returns in 22, those returns didn’t linger. They, they cut had a catered way. So it wasn’t a it was a difficult conversation, maybe at one review baiting. But that went away pretty quick. So it’s pretty important to I suppose really demonstrate the clients that significant events can come and linger.

James Wortley
And the industry super funds with some of the returns that they’re putting out for retirees as well. So when you got in the marketplace, and we’re getting a nine 10% return over the last 20 or 30 years with industry super funds, is clients still hear that number? 10%? Oh, wait up, I’m only getting six or 7%, or whatever return that they’re getting on their portfolio, they’re always going to compare and there’s a little bit of that. Actually, it’s a number that number six here herd mentality, where they actually hear that return and go, Oh, wait up, oh, yeah, how come I’m not getting that return? I should be getting that. And then once the advisor starts talking through that about the actual asset allocation on those particular balanced funds that might be 90 95% into growth assets, it’s a good conversation, be able to have this talk, again, about that sort of risk in their portfolio?

Jamie McIntyre
Well, let’s let’s talk about it mentality and maybe referencing the industry funds in some way. But probably all big corporate type arrangements are seeking a herd mentality to, I suppose, promote what they’re doing or promote their product at scale? How do you work through referencing back to industry funds by they generally advise to specific sectors as well. Now, do you work through the conversation of herd mentality with your well, probably more your new clients? Because I’m sure you’ve educated your current clients about that? How would you go about educating a new client about that bias?

James Wortley
Yeah, we still start from scratch. So first of all, because there’s two parts to risk profiling isn’t a number one is actually understand what type of ERISA they have. But it comes back to what’s the actual strategy on your investments. So if it’s a retirement superannuation strategy, then we can actually understand what that risk profile is. But there might also be capital expenses, or whatever it might be over the next 12 months. So it’s a different risk profile. So we’re a little bit different. When we talk about conversations, I will look, you might have one overarching risk profile. But for each strategy, you’re actually going to have a different risk profile for the way that we’re actually going to invest your money. So again, a bit of a bit like the emergency fund, what does that emergency fund look like? Is it 20,000 50,000 $100,000? Is there any capital expenses that you’ve got coming up over the next two to three years, that might be a different investment strategy than what we would have for when we look at the big bulk of the retirement money? Because it’s more long term investments? So So I think that’s that’s one of the conversations that we’re actually having. With our, with our clients. It still comes back to that, that real basic conversation about returns is based on your your capital in superannuation. If you’re a 5050 risk profile, then the expectation is five or 6% return over the long run. This is what’s gonna happen with your capital. Are you comfortable with that with that decision? Are you happy, happy for your capital rather run down or stay in line? Is it going to increase with inflation or is it going to continue to keep on growing So, so depending on what the capital that they do have,

Jamie McIntyre
or not the one thing I sort of picked up through that, James is, look, every, every new client comes to you with a series of biases based on where they’ve received their information from maybe from the people they spent time with. And it’s, I suppose the most important thing as an advisor is to get to the depth of that bias, and really get to the depth of what is important to them, and where we shared values of having values based planning. And you’ve got to get an understanding of what it is they really want, and then figure out if they can do it all really, isn’t it? It is,

James Wortley
it is, that’s, that’s this, they’re not going to be able to get any extra capital, if they’re finished work, then this is what they’ve gone. So we need to make sure that we’ve got a structured plan for them for the future, to make sure they can achieve all the life goals

Jamie McIntyre
did I suppose referencing rather than reference reference industry funds, but let’s just reference a superannuation or retirement account that has one investment option. And each time you take money out, you’re effectively taking money out of the investment option? I think, you know, if you go in with that strategy, and you know, what are your goals is to take a $50,000 trip around the world. And that happens to be July in 2024. And the markets down 20% in March 2024. Everyone gets pretty fearful of taking money out of that portfolio at that time, don’t they?

James Wortley
Now, they certainly do. He just reminded me of another potential benefits a bias, but probably even a client goal is clients want to be able to maximize any Centrelink benefits that they can get in regionally and yeah. And I think we would see that I think it’s nearly a number one goal that’s will always question as a financial buyer. Is Centrelink important to you? And then a lot of people will say, Yes, I paid a lot of tax over the over the days, we want to be able to get something back. So again, that sort of brings in that little bit of a bias. We’re actually talking about that loss aversion and everything else where some clients have got too much money. So do you want to be able to reduce your capital, just to be able to get any type of Centrelink benefit? So there’s a bit of a balance, and you probably see that, Jamie, in the conversations you’re having with your clients? Oh, look, we

Jamie McIntyre
certainly do. That one’s a really interesting one. And I think the way you framed it up that most people will will have a sense that they would like to get something back from Centrelink, or something back, let’s call it from the government or government support that they feel as though they’ve done their bit through their journey and getting access to Centrelink. But it can become a bias where they will take actions to get that dollar of Centrelink, which is not actually that beneficial for their longer term capital and financial future either. So it’s an interesting one to work through with each client, that’s for sure.

James Wortley
And this is and as part of the values based advice and goals based advice as well. You’re getting clients to prioritize what’s more important to them, is that making sure that you’ve got capital that you want to be able to provide to your to your estate, when you’re gone. Are you happy to be able to draw down that capital and just make sure that you’re going to live your best life, it’s actually understanding that prioritizing what those goals are. So if they’ve Centrelink is their number one priority. Okay, then these are things that we can be able to help you with that. But it also might mean Centrelink might be up for them in 10 years, in 10 years time. So but at least for us, making sure that we educate clients so they can fully understand what we’re looking to do for them. And then the other part is implications as well. If we do this and go this way, this is the implications of your capital. Yeah, and

Jamie McIntyre
the the the ongoing trade offs. I think you can chase Centrelink as quick as you like. But generally speaking, you’re going to have to consume money. Maybe not on things that you actually want or need. And it’s been like chasing a tax deduction and buying something you don’t actually need to see you pay less tax.

James Wortley
Yeah, we see that all the time anyway.

Jamie McIntyre
I thought yes, we do. The youth they usually do it without us knowing do they do? We find out later, we’ve given another one there in your chat GPT lists for us to dig into

James Wortley
confirmation bias. So confirmation bias is the tendency to seek and interpret information in a way that confirms pre existing beliefs. The bias can lead retirees to disregard important information that challenges their retirement plans or investment choices.

Jamie McIntyre
Yeah, that’s we really dug into that one earlier when we were chatting about the bias in firm, and we’ll reference the industry funds because they are big promoters of their returns and we all see them. You don’t often hear too many financial planners promoting the returns of how they’re going. Yeah, it’s a real confirmation bias that I saw on the telly it must be true. I need to get that return right.

James Wortley
It is it is and and best hand again, all good advisors. I know we all do. This is just a sham about the asset allocation. This is a return compare apples with apples, it’s, it’s a pretty standard conversation that we have with our clients so they fully understand what the implications might be might even move into a lot. The next one we had was recency bias. And this is potentially where we are now where returns are sort of picking up. recency bias involves giving more weight to recent events or experiences. When making decisions, retirees might base their investment decisions on recent market performance, rather than considering long term trends.

Jamie McIntyre
Yeah. And you referenced earlier, and we’ve referenced this in one of the other podcasts, also, being able to look at an index chart, we always think that that’s a really good reference to reference the broader index. And particularly, I mean, there’s a couple out there that you can go and have a look at that, they’ll give you, you know, up to 50 years return profile, and we’ll show you the volatility through there, it’ll show you the average return, we’ll pick up the GFC I suppose we’re talking a little bit more there to shares that they will also pick up fixed interest and everything else like that. And I think if you can give clients a longer time frame of thinking that will help them move past the recency bias

James Wortley
at the end. And I think those that I can remember the asset class returns what I think of we’ve been using it for about 20 years, just showing, okay, the last of the best asset class traditionally won’t be the best asset class of the following year. And potentially, if it was a good return, then potentially might be a negative return the following year, so. So given that clients a good understanding, just again, bring it all back to basics, don’t put all your eggs in one basket, what’s the return that you’re actually after, and making sure that we structure a portfolio around that, and still having that same conversation with those retirees, if their capital is increasing? Do they need to be able to have that six or 7% return? Maybe there’ll be maybe they based on their goals only need a four or 5% return. So be able to take some risk off of their portfolio. If required,

Jamie McIntyre
you can work your way through the trade offs. And you’re right, it doesn’t have to be about the actual return being high over time. You can get a greater balance with a lower return looking at everything in its hole, and providing that unique, tailored advice to people.

James Wortley
So yeah, so I think recency bias is like we’ve gone through so Ukraine, still going Ukraine and Russia. We’ve got a couple of elections coming through shortly the US election next year. So that’s that’s going to change a little bit more. The dynamics. I know we’ve got a local Queensland Government election as well. So so things things obviously, are going to change. And sometimes it’s not from an economic point of view, they’re just other issues that we we potentially haven’t thought about. So Taiwan, we’ve always got these different issues. And I suppose when you look at the history of where we’ve come from over the last 30 years, there’s always different things that have happened during the year. So it’s making sure that from a client’s buyers point of view, where they’re worried about all these things, we’ve got the other concern, maybe even lead on to those conspiracy theories, Jamie, because we see that all the time clients always come up with our Yeah, when money superannuation I think this is one I’ve had, might have been bad six months ago. If the government gets in trouble, they can take your superannuation off, you shouldn’t be heard that when we vote,

Jamie McIntyre
we are while the government will change the rules again, is that it’s a really a I love the way they hang on, they’ll change the rules again, and it’s like, okay, we’ll define that. Tony, how do you think that could work? And yeah, it’s some fear, isn’t it? Oh, that I trust the government. There’s many like that.

James Wortley
And there is and against just having that conversation with what’s important, important to them. And, and hopefully, if it’s really far fetched conspiracy, we can knock it on the head. Sometimes that might mean you have to go into Google and, and actually get some facts on the table for them so they can actually read it and see it. Because sometimes you might be talking to the client, you can see they’re just not listening. But especially for those really headstrong conspiracy theorists.

Jamie McIntyre
While Absolutely not. I think what we’re mainly talking today is that, well, a lot of biases right now. I think history is a really good indicator of what the future looks like. And we don’t know exactly what the future looks like. But we’ve seen there’s always been significant events that have occurred, who would have thought we’d get locked out and for a thing called COVID. Right? So we’re not sure what’s around the corner. But But history would tell us there’s significant events, I mean, we go all the way back to World Wars, depressions, etc. But there’s been something significant happening in the world, every 10 years or thereabouts, that’s going to have an impact on markets. And when we say how An impact on market that has an impact on economic activity and in the performance of companies around the world

James Wortley
there. Yeah, just change the and this is why clients want to make sure that, that they’re getting good advice. Because the one thing we can probably guarantee is that government legislation will change, economic conditions will change. And this is why we have financial advisors while we want to make sure that we’re providing ongoing financial advice. So. So some some things we can’t control. But but from a strategic point of view, when we’re talking about estate planning and cash flow, there’s certainly a lot of good things that we can and should provide to our clients to make sure that we can we can try to protect their wealth and their income and give them a full understanding. So I’ll always love that sleep at night test. That’s what we do for our clients, making sure that you can sleep at night. So it doesn’t matter what headline is, in the paper, when you wake up the next day, you know that the financial advisors got that under control for you?

Jamie McIntyre
Yeah, I agree with that. I won’t word I think that sums up a fair bit of that. And a word we use very often with our clients is that we’ll help you navigate all of this, we’ll put in a really good, we’ll go it’s a really good plan based off a lot of work and going through that history piece in education, helping them with potential biases. And you build that plan out and it’s all about navigating it from there because these things are coming

James Wortley
in. I know one of the things that we talked Elomi is just this, you’re driving on a highway, you’ve got these guardrails, but the highway just doesn’t go straight, there’s always going to be things that change. And for number one from a client’s point of view, it might be their health, it might be some family’s health, there’s always going to be some changes again, we talked about economics situations or or they might have to help people out financially in their journey that they’d never thought that they’d have to do. So there’s always going to be changed there. And that’s our our job is making sure that we can keep those clients within those guardrails on an ongoing basis. And MSC advice, isn’t it? I think that’s that’s why we preach the values and goals based advice. We can’t control investments. Sometimes we don’t know what’s going to happen tomorrow. But we can certainly understand where our clients are, what type of experience that we can provide to clients to make sure that they’re happy and comfortable living their best life and not having to look over their shoulder or about everything else in relation to their, their financial, their financial assets.

Jamie McIntyre
Absolutely. And referencing again, the bucket strategy and everything that gives them what a significant amount of comfort for when these events do occur. Yeah. Do you have another significant bias there? Taurus, James,

James Wortley
there’s a couple more, I’ll just read this one endowment effect. So the endowment effect is a tendency to overvalue items or assets simply because they belong to us in retirement, this bias can lead individuals to hold on to underperforming investments due to emotional attachment, even when better options are available. So so the one thing I’ll probably ask you, Jim, I’ll put you on the spot is have you had those clients where they’ve held on to a&p shares or use a&p as an example because a lot of people inherit a&p shares, and, and they might have inherited through a policy through through parents or whatever, whatever. But they’re actually holding on that those shares only because that was given to them was one of those, one of those freebies that NASA received. So they’ve got that emotional connection to the

Jamie McIntyre
year we have experienced that I look, we’ve had an association where licensed by a&p Financial Planning and have been throughout my 23 odd years. And across that 23 year journey, when I started out people will get their a&p shares, right. So I’ve been talking to clients or policyholders back then about their a&p shares. And they held on to them for a period because when Mr. Trumble came out and announced everything, it was all wells, or aka hydro was all exciting $20 a share, and everyone had a big windfall, and but over time, they’ve seen them diminish. So So through probably a 10 year timeframe, there was still optimism around the scope, this endowment effect about oh, they’ll come back, they’ll come back, they’ll come back. And then probably the last five to 10 years, that endowment effects only go on, if that makes sense. Because from a share price performance, the it hasn’t been very strong frame P through the last 10 years. So the endowment effect did die off over time. But it was there for a long time. You know, they hang on to them, they hang on to them. And look, there’s probably many, many more companies out there that that happens with as well. But yeah, definitely the endowment effect. We’ve seen that firsthand experience

James Wortley
and what your client or your staff is still seeing that with your clients that you’re talking today that have those a&p shares, it’s

Jamie McIntyre
less significant conversations. Most of the mums and dads have sold them by now there’s very few and far between that that still hold them. Because really that could give him an I didn’t know anything about shares, it was a bit like, let’s call it everyone that bought Telstra shares to shift gears as well, they had been down in effect, because they didn’t speak for everyone. But part of what I’ve experienced is they trusted the government was going to be really, it was going to be really good for them, they thought, and I had that endowment effect for a while because it was for a lot. It was their first significant decision about investing that they made on their own. And then I’m sure there’s another bias that would be there of why they hold onto them. They’re emotionally attached to them. Feeling very empowered, that they’ve made their own financial decisions, and then feeling quite disempowered over the journey as the performance of Telstra has caused.

James Wortley
Yeah, yeah, we’ve had, as another example, we’ve had a lot of clients that have inherited shares from, from their parents said, might have pasta through an inheritance. And it might be that we’ve actually done the risk profile, and they might be a sort of 5050 risk profile. But they’ve got 400 or $500,000 worth of blue chip, Ozzie shares. So if you’re having that conversation about Asset Allocation and Risk Profile, they might have to look to reduce that exposure. But they won’t do that, because of that emotional connection with those shares, because they received that from from their parents.

Jamie McIntyre
Yeah, and I look, I think, a great way to work through that bias that that portfolio of let’s call them blue chip shares, were a big fan of index investing. So we take a look at the portfolio and the performance over the previous 10 year period, compare it to the index, and take a look at it from that perspective. Just help with a broader perspective of if you own 200 of the top 200 companies rather than 12. How did that how does that look? So we found that’s been really eye opening for clients as well, to help with that, that bias to that.

James Wortley
How about the little gold mining companies or those little small technology companies that, that a haul it’s gonna get there, it’s gonna get there. But in the end, it’s, it’s still not doing anything, they got that bias? And look, it’s gonna make us rich one day.

Jamie McIntyre
Yeah, that’s a really interesting one as well, I think you would have experienced something similar to me in that space, probably up until five years ago, let’s call it regulatory settings meant that people could promote buying into penny stocks. And people would do that and buy those. I think that’s now been overtaken by crypto and other sort of, I shouldn’t say unregulated but got water regulation. people receiving information from unregulated places. And that’s really the one now that I think everyone got it a little bit of crypto, I was in it for a little while. couldn’t handle it, I got out. And what about you? That’s more probably the younger ones. That’s not really the Miss retirement space we’re talking about. They don’t many of you raise vice, not a

James Wortley
lot. But we still get the questions every now and then there’s, there’s retirees, and that’s one of those things where we’re talking about, okay, what do you want to be able to do in retirement, and for a lot of them, they want to play around with the stock market and just haven’t had something of interest. So that’s there’s a bit we’ve got a lot of clients that actually just like to be able to just play around with some of those investment markets and see how they go. But it’s sometimes I don’t think it’s actually about making any money, I think for them is just having something to do having something to research something to have a look at. And, and that’s it. For some people, it’s actually really good for their health.

Jamie McIntyre
Yeah, I agree with you there. And there’s another element to that is having something to talk about with the people they spend time with, which is a really important element for all retirees as they shift into

James Wortley
retirement. It’s, it’s a huge one, because it’s as part of the values that we talk to our clients. So through Lumia, we’ve actually got a card game, it talks about eight dimensions of well being in 16 cards. And, and a few of those cards might be volunteer my time, what does that actually look like feel confident in my finances? It’s interesting when you actually really knock down what they actually mean by that particular card, and why did they actually pick that particular card, and some really good understanding with what they’ve done to us on what’s really important to them in their lives? And, and that’s the benefit out of providing what we do provide that accountability. So not only just financial, but also accountability around how they live their best life based on what their values are.

Jamie McIntyre
Yeah, yeah, absolutely. I think those cards are what a lot of good advisors do from in a personal way. But those cards are a great reference point for maybe the younger advisors just starting to work in this space to to enable them to dig deep into what clients really want.

James Wortley
Yeah, that’s right. Yeah, that the last the last bit and I’ll summarize I think we’ve covered majority of those. Those by biases, the summary there for Chad GPT or call him out again, these biases can collectively lead to inadequate savings, sub optimal investment decisions, and overall poor retirement planning. recognizing and addressing these biases through education, professional financial advice, and self awareness can help individuals make more rational and optimal decisions for their retirement. They’ve got a cute OS for financial advisors there.

Jamie McIntyre
And then antastic. And I think so it should be I think I’ve noticed a lot of things with just chat chat GP T, they they tend to reference the financial advisor to get good advice, which is, boy, that’s, that’s pretty empowering for us in financial planning. Now, James, we used to get kicked down the road a lot.

James Wortley
Yeah, absolutely. I has come a long way. And you know, I certainly won’t take any anything back. I think we’ve actually learned a lot. So again, I started back in 98, as well. So I might Yeah, 9798. But yeah, going back to the days, but we always talk about sort of going in, in cycles. And and it’s interesting when you sort of look back at it, the way that we do video advice at the moment where we’re providing advice, and we’re doing it a little bit differently, but you can really go back to what it was in back in 98, we could do an advice on on two pages. Remember those days? What do?

Jamie McIntyre
I certainly do? And how am I going back to the future soon, James? No, I’m

James Wortley
hoping so I’m hoping so not the we’re

Jamie McIntyre
here to talk about this. But you know, product providers, were the drivers of no use the wind industry again. And for us, we’ll do our part as the profession. And the product providers are going to do their part for the product industry. And it’s going to encourage them to continue to build better products. And I think the separation is really good. Well, how do you James, what are some of the strategies you take to discuss biases with clients, and maybe communicate with clients broadly to help them with some of that will or were the chat GPT used, which was self awareness,

James Wortley
self awareness. Look at this part, when we when we bring on a client, we don’t provide the usual statement of advice with the full on plan upfront. So we take it based on prioritizing advice. So pretty well, a 12 month contract for clients, and just prioritize what’s really important to them, and then actually continue to just knock those different goals and strategies off over that 12 months. So but what we’re actually finding is, instead of the traditional financial bosses, where you provide the statement advice, you see the client, you do some implementation, you see them six or 12 months later, where we’re doing a lot of discussions in relation to investment preferences. So I think that’s one of the key one, I think that one gets a little bit lost, where I think advisors need to be able to spend a little bit more time about what’s really important to clients about their investment preferences, which which it’s comes back into risk profile, I sell occasional risk profiling questionnaire as well. But having an understanding with clients, whether it be ESG might be something that’s really important to them. Cost is always something that we talk about to clients is cost really important is that more dynamic asset allocation, do they want that rather than static asset allocation. So I think when we actually talk to clients over a 12 month period, rather, and just a continuous, because we might be CFO for one of our new clients, we probably see them or talk to them at least once a month over a 12 month period. So what that allows us to be able to do is actually have a good understanding with who they are, how they take investments, so we can talk about the investments, the volatility, and how they’re actually going with their volatility. Do they need to be able to make any changes? Or they do they want to make changes? Do they have a bias to be able to change? I think we’ve always had those clients here where they, some of them just don’t like losing money and want the change for the sake of doing some change. So to make them feel a little bit better. So I think having a good relationship with clients and really getting down to I took about by the soup, peeling the onion, is that financial advice, I think where we came from, we might have got down one or two layers, whereas values and goals based advice is getting down that fourth and fifth layer of the onion, which is really understanding what what’s what’s the importance and what are they trying to achieve? And what’s their, I suppose what’s their what is the dynamics of their life look like and and how can we help them on their life’s journey? So, so I think putting all that together. So again, a little bit, a lot of words there. But I think for us is making sure that we continually talk to our clients. And I think this is the evolution of financial advice as well. It’s not about a strategy review or an annual review. It’s just continual advice. And we actually do we, we were still in this we need to do a review and annual review meeting every year. And that’s really comes back to that’s a lot more a compliance point of view. There’s a lot of things that we do with our clients and talking them over that 12 months where there’s no need for an annual review. There might be some documents that we need to fill out up or get signed. But other than that, it’s really not an annual review, because we should be making sure that we’re providing that ongoing vise for their clients through and making sure that they’re accountable to their goals as well.

Jamie McIntyre
Yeah. And look, I agree with that I think the compliance review is really a construct of product. To satisfy things associated with a product were similar to you Jane’s in many ways, really, we’re providing ongoing planning and ongoing advice. And, and when we cross reference that with biases, new biases pop up all the time, social circles change, or different marketing influences come into play. And it’s really important, we continue to point out to clients, their biases and their blind spots, so they can get on with living a good life. And I love Joe better for peeling back the onion, I suppose the previous construct of given SOA and do a review, I’m not doing enough justice. But that was only the only had to peel back layer one or two, maybe three of that onion. And now it’s so important to dig deep and get to the core, isn’t it?

James Wortley
It is, it is it’s everything we do it did. I think that’s where it comes back to the difference between really good financial advice is all about us making sure that we can fully understand our clients, or where they are how how they act in different situations as well, whether it be health issues, financial issues, or whatever it might might, might be any changes that they have. And that’s where a good relationship is where, where clients will tell us absolutely everything that’s going on their lives, because they trust us for who we are and what we do for them. And it’s a critical thing, isn’t it?

Jamie McIntyre
Yeah. And I think you’ll you’ll start to recognize that I’ve recognized that over the past 10 years, we’re about we’re pretty aligned in the changes we’ve made again in there, James and the the deeper you dig, the more you find out the more you understand the one of the first people to know when they’re having their first grandchild.

James Wortley
Because you get a depth of relationship. That’s way beyond the money. It’s really just about helping them have a better life, isn’t it? Oh, it is. And and especially the grandchildren, because they just they love it. That’s sometimes for some of them. It’s a life purpose to be grandparents. And so what can you do? Number one is time is obviously they want to spend as much time as they can with them. But there’s also a potential there where they can actually help them financially or build a little nest egg for them as well. So just opens up so many advice strategies for them, as well. And then when wants to be able to lead them. Yeah.

Jamie McIntyre
And that’s another interesting one, too, isn’t it helping retired clients frame up the right way of looking at giving money to their children and grandchildren? Do I save 100 bucks a week or two, I grab it as a lump sum from a from one of my resources at the right point in time.

James Wortley
Yeah, one just in another one. And I opened this up to you because for us, it had been around for over 25 years, you’ve got some really good strong relationships with our clients. And what financial advisors tend to do is, is, especially if they’ve got a really good relationship with their client just don’t they go off strategy, they don’t go and follow an agenda, because they’re talking about the family and friends and, and there’s probably talking about stuff there that they probably wouldn’t be talking about. It was a new financial advice client. So I think there’s a little bit of a bias there where financial advisors if they got really good relationship with clients, making sure that you can put that to the side and still come back to actually understand what those client goals are their values, what’s really important to them, and making sure that that they’re on track for everything they need to be able to do that we don’t have this bias just to be able to, here we go. Let’s just have a quick chat here. Let’s sign these things. And we’ll see you in six months time. Because we’re not doing the best thing by that night client relationship or financial advice relationship. Yeah,

Jamie McIntyre
I hear you on that at review. And I also think we can, I’m not guilty of the right word, but we can get guilty of that bias with different pressures within businesses. I’m a small business. So I don’t have that issue. We’re very focused on not having a bias to cut down time spent with clients. So I think that’s really good advice, James for maybe the younger advisors that are the baby or in a larger practices, just be aware of the bias of you know, only having one to three meetings and then presenting an SOA, you’re not necessarily going to get the depth that you need to help retired clients or about to retire clients. You’re not going to be able to work through all of their biases, and they just keep popping up over time. So I think giving the investor time at the front, then that ties into things like pricing and time, you’ll definitely be in a great position to Well, I suppose not eliminate all of the above izes but be able to educate them, empower them, and help them with that self awareness as referenced by Chad GPT. To put them in a great position to live a great retired life.

James Wortley
Yeah, yep, completely agree,

Jamie McIntyre
James worthy you and I could talk for another three hours, but I’m mindful of the time that we have to spend together today. Today’s episode was spoken about biases. We’ve gone down many, many different tracks. And I think that’s a reflection on humans are complex planning their lives is complex. But we did cover off well not up to about 10 biases today in some good detail, and there was some really good kind of conversation. So thank you for your time today, and I’m looking forward to the next time we catch up. Thanks, Jeremy.

James Wortley
It’s been a pleasure.

Jamie McIntyre
Please don’t