The car industry has mastered the art of offering us a personalised product at scale.
Its trick is to offer us a small number of variants across multiple features to give us something that feels bespoke to us, but which is easy for it to manufacture.
I wonder if this might offer us some clues of how we can build retirement plans that meet our clients’ needs but don’t overwhelm advice businesses in complexity and risk?
Our latest research, Retirement advice in the UK: time for change?, produced with NextWealth, found the use of centralised retirement propositions (CRPs) is on the up.
Over a third (38%) of adviser firms have had a CRP in place for over a year and 34% of firms told us they have introduced a CRP in the past year or expect to do so over the next 12 months.
The main reason given for this burst of activity is that the regulator expects firms to operate a consistent approach to retirement advice. The FCA’s thematic review of retirement advice stopped short of mandating the use of CRPs but it clearly favours them.
That said, over a quarter (28%) of firms surveyed had no plans to introduce a CRP, with the majority (84%) saying this was because they prefer to tailor advice to clients individually.
Tailoring advice is certainly something the regulator wants firms to do. The thematic review reminds us we need to ensure solutions are suitable for the specific circumstances faced by clients and decries the use of fixed withdrawal rates, as they do not reflect individual client circumstances.
Is there a contradiction here? We don’t think so. All advisers will want to tailor advice to client circumstances. A CRP just helps for that tailoring to be done consistently.
Of course, it’s not possible to create a single proposition that meets all client needs, so it may be better to think of what’s needed as a common and consistent approach to giving retirement advice that is different from that used for clients accumulating wealth.
Whatever we call it, this will cover the products and investment solutions used but should also include how objectives are arrived at, when and how cashflow planning is used, how withdrawal rates are set and so on.
Building a set of rules sufficiently flexible to cope with the variety of client needs, while also being sufficiently tightly defined that different advisers within a firm will give a client identical advice, is no mean feat.
But our research suggests it’s certainly worth the effort, bringing a huge range of benefits, such as:
1. Ensuring regulatory compliance
The FCA review highlighted areas for firms to reassess their retirement advice approach. We found around 20% of firms were looking to make changes to their risk profiling approach or investment solutions to make them specifically relevant for retirement.
Following a common advice approach that recognises the specific needs of retirement clients will strengthen compliance, so reducing risk.
2. Improving client confidence
We also surveyed over 250 retirement advice clients and found that 86% of these said working with an adviser increased their confidence in achieving their retirement goals. Having a consistent approach can ensure all clients receive the same high level of service, which, in turn, boosts client satisfaction, confidence and trust.
3. Enhancing client outcomes
Successful retirement planning involves balancing flexibility and certainty. Firms will have different views on how these trade-offs are made. This might include how investment solutions are combined or when guaranteed income is used.
Investing time and effort in determining these trade-offs centrally and applying them consistently will ensure all clients benefit from the firm’s best thinking.
4. Driving efficiency and productivity
There is high demand for retirement income advice. Nearly three-quarters of firms see changes to tax rules, especially pension tax rules, as increasing demand. The decision to bring unused pensions into inheritance tax will certainly drive demand. 61% of firms told us these changes would affect all or most of their clients.
However, there are challenges. 48% of firms said the impact of regulation on the time taken to give advice would constrain their ability to meet demand and 44% also see adviser and paraplanner productivity as a constraint.
Having a repeatable and consistent advice process can help advisers counter these issues. Consistency reduces the time needed to manage compliance and a clearly defined approach can be more easily systemised and automated to give advisers more time back.
Planning retirement is obviously not as simple as choosing the audio options or paint job for a new car. But building an advice process for retirement that allows tailoring within an agreed framework will enable firms to deliver increased confidence and great retirement outcomes to an even bigger audience.
Richard Parkin is head of retirement at BNY Investments
