Matt Ward, communications Director at AKG revisits the themes and results of the company’s paper on retirement planning and what advice firms need to consider when reviewing and conducting due diligence on their proposition.
In October 2022 AKG published an industry research briefing exploring retirement planning and Centralised Retirement Propositions (CRP) and sharing findings from an adviser survey and a series of interviews with adviser firms.
As per the title – ‘Coming back to the table on CRPs’ – this output encouraged advice firms to revisit and reconsider their retirement planning proposition and services for clients.
In recent times there have been numerous developments which give good reason for such reflections and at the start of 2023 a further ‘incentive’ was thrown into the mix with an announcement from the FCA that it would be re-exploring this market itself via a thematic review assessing the advice consumers are receiving on meeting their income needs in retirement.
Here, we take a canter through the key high-level themes emerging from AKG’s research briefing:
Inflation impact – Impact of inflation, cost of living crisis and investment volatility on retirement planning (and, by association, CRPs), is underlining the requirement for firms to review and evolve processes/propositions. Against this backdrop, clients’ retirement wherewithal and income sustainability will be under greater pressure.
Forces colliding – Leading to a ‘perfect storm’ where advisers and their clients are currently grappling with understanding and managing longevity risk, inflation risk, investment risk and sequencing risk. Presenting real challenges to income sustainability in retirement. Cash flow modelling is seen by many as a key tool to underpin retirement planning.
Education requirement – As a result of the factors described above, there is a greater requirement for education on pension and retirement planning risks – to be improved across all age groups – and this will be essential to the successful long-term future of the market.
Risky business – Advising clients in retirement/drawdown is seen by most firms interviewed as more risky and more expensive than advising clients in accumulation. Risks are exacerbated once clients start to take income.
Drawdown tactics – Income generation and supply tactics will be crucial to support client needs – from sustainable withdrawal rates/strategies to income generation techniques. Whether done in-house and/or using outsourced investment support there will be a period of concerted pressure on investment management in drawdown.
Avoiding ‘shoehorning’ – Despite process efficiencies and consistency that can be brought about by adoption of CIP and CRP, advisers recognise that not all clients are the same and hence there is a requirement to provide plenty of scope for bespoke/individualised approaches and portfolios where needed.
CRP adoption – Potentially contrasting views on CRP adoption as adviser survey shows this as being widespread, whereas adviser firm interviews suggest that these are only emerging and that development has typically been taking the form of structured/mandated processes rather than mandated products/propositions. Either way, the driver is the need for compliance, consistency and efficiency.
Retaining independence – A key concern is that a CRP might compromise independence if there is too close a tie to a specific product or provider. Whole of market status is ferociously guarded by IFAs.
Process or Proposition – When it comes to CRPs, perhaps it is more a case of ‘P’ for processes for advisers and ‘P’ for proposition in the minds of providers, platforms, DFMs and asset managers. The market for solutions to support the proposition delivery element is extremely competitive with multiple players targeting AUM, but it is felt that there is still room for development of more decumulation and retirement income specific solutions.
Business concerns – More consistency of views held when it comes to concerns for adviser firms. Consumer Duty is seen as a major current challenge, along with costs and administrative burdens of servicing client’s retirement portfolios. The adoption of CRPs is seen as something that can help firms to mitigate some risks and meet some challenges.
Advice access – Advisers foresee serious issues around the scarcity of advice at a time when advice needs are already proliferating, especially as DC pensions are becoming the dominant form of pension saving.
Challenging times – There are concerns that many of the issues emerging today may get worse before they get better and from the adviser perspective centralised retirement advice/planning processes will be key to supporting consistency and targeting positive client outcomes.
The requirement to review and perhaps recalibrate retirement planning propositions and services therefore seems obvious. As does the requirement to challenge the post pension freedoms status quo in light of more recent developments and the ever evolving backdrop.
AKG’s research briefing was sponsored by Investec Wealth & Investment and can be downloaded at https://www.akg.co.uk/downloads or https://www.investec.com/en_gb/advisers/download-coming-back-to-the-table-on-CRPs-whitepaper.html
