Advisers face rising demand and evolving regulations, but the future is ‘bright’ according to Richard Parkin, Head of UK Retirement at BNY Investments. In this blog for IFA Magazine, Richard reflects on recent research done by BNY Investments in conjunction with NextWealth. He explains how and why building scalable, consistent processes can secure successful retirement outcomes for clients whilst ticking regulatory boxes too.
Retirement advice is important for the clients that receive it and the firms that deliver it. In our recent research report,Retirement Advice in the UK: Time for change?, produced in conjunction with NextWealth, we found that 57% of advised assets relate to clients who are approaching, at, or in retirement. This is expected to grow to 61% over the next three years.
Pension freedom has led to a greater demand for retirement advice. FCA statistics show that revenues earned by retail investment advice business doubled over the ten years to the end of 2023 and retirement advice will have been a key driver of that. With ongoing advice under regulatory scrutiny, retirement advice could become even more important as the need for ongoing reviews in retirement will continue for the foreseeable.
Our research showed that firms have started to respond to the findings of the FCA’s thematic review of retirement advice though work remains to be done. With the FCA highlighting this area as a priority for their adviser strategy over the next couple of years, firms can no longer ignore the detailed guidance on what the regulator expects and what it considers as best practice that the review contains.
But our research also found that we’re starting from a good place. As well as speaking to over 200 advisers, we surveyed 254 advised clients over the age of 55 and with more than £100,000 of investable assets, and the results were overwhelmingly positive.
Clients reported that working with an adviser made them more confident of achieving their retirement goals, with 86% expressing increased confidence. Additionally, two-thirds of clients said they were on track for or experiencing the retirement they expected, and a further 26% said their retirement was better than expected. This confidence is a testament to the value that advisers bring to their clients’ financial planning.
Looking through the lens of the Consumer Duty, we found that 89% of clients scored their adviser 7 out of 10 or higher for the comprehensibility and understanding of advice with 83% scoring 7 or over for customer support. Most felt advice was worth what they paid for it with 89% saying advice fees were good or average value.
While clients cited achieving good investment returns as the most important reason for seeking advice, they also prioritise establishing financial objectives, maximizing tax efficiency, and achieving peace of mind. They are also interested in receiving help beyond core financial planning. Funding social care and managing the impacts of changing health are areas where clients need support but where advisers are less likely to offer services today. Advisers who can expand their services to cover these areas will be well-positioned to meet their clients’ evolving needs.
While the overall position of advised clients is positive, there are areas where advisers need to develop their approach to meet regulatory expectations and enhance client outcomes. Most of our respondents told us that while they feel the demand for retirement advice is high, increased regulatory requirements will negatively impact the time taken to give advice, and so potentially limit their ability to meet that demand. We see the answer to this challenge as building retirement advice processes that deliver suitable advice in a consistent and scalable way.
Demonstrating Suitability
The FCA review emphasised the importance of demonstrating the suitability of advice for retirement income clients. Clients in decumulation face different risks from those accumulating wealth, such as longevity risk and sequence of returns risk. They are also likely to have limited resilience to deal with market or economic setbacks and so are likely to have a different attitude to the trade-off between risk and return. Advisers need to recognise these differences and tailor their advice accordingly.
Our research found that three-quarters of firms use a different approach to assessing risk in retirement, but 24% have no immediate plans to do so. Additionally, the use of fixed rates to determine sustainable withdrawal rates, such as the 4% rule, has come under scrutiny. While the use of fixed rates has decreased, 27% of advisers still use them all or most of the time. The FCA are clear that firms need to move away from fixed rates and consider clients’ individual circumstances to ensure the suitability of their advice.
Maintaining Consistency
A common approach to delivering decumulation advice, sometimes called a Centralised Retirement Proposition or CRP, will help reduce regulatory risk and support scalability. Our research found that 72% of firms already have a CRP or are planning to implement one this year. Of those who have no immediate plans to introduce a CRP, the vast majority (84%) said they prefer to tailor the advice to individual client needs. While tailoring advice to each client is essential, it should be done within a framework that ensures consistency across the firm.
Building Scalability
We believe that human interaction is essential to help understand what clients are really trying to achieve in retirement and to translate this into financial objectives. However, greater use of technology can help embed consistency, drive productivity, and improve record-keeping, another key focus of the FCA review. An integrated technology stack that ensures consistency of data and assumptions throughout the advice process is essential for achieving scalability.
Conclusion
The future of retirement advice is bright, with significant opportunities for advisers to expand their services and meet the evolving needs of their clients. While the overall position of advised clients is positive, there are areas where advisers need to refine their approach to meet regulatory expectations and enhance client outcomes. By focusing on demonstrating suitability, maintaining consistency, and building scalability, advisers can ensure they are well-positioned to navigate the future of retirement advice and keep their clients satisfied.
About Richard Parkin
Richard is Head of Retirement for BNY Investments. In this role he is responsible for working with BNY Investments’ intermediary clients on developing their approach to retirement planning and investment.
He also acts as a spokesperson for the firm on retirement issues particularly as they relate to investment. Richard has over 30 years’ experience in the industry, focused on Defined Contribution (DC) pensions and retirement.
