Behavioural finance specialists Oxford Risk have launched a new tool to help advisers demonstrate the suitability of their retirement income recommendations.
The company said it has seen many financial-advice firms struggling to meet the FCA’s stricter requirements following its thematic review of retirement-income advice.
These areas include information collection, suitability assessments and disclosures.
Oxford Risk cited the growing popularity of guaranteed income products as just one example of how retirement income planning is changing and, consequently, how advisers must adapt.
Annuity sales, for instance, rose 39% to 82,000 individual contracts sold in 2023/24 – the highest since ‘pension freedom and choice’ reforms came into effect in 2015.
The £6bn invested in annuities, meanwhile, was more than 49% higher than the previous year.
Head of behavioural finance at Oxford Risk, Dr Greg B Davies, said: “A common strategy for advised clients entering retirement is to allocate part of their pension pot to provide a guaranteed income for life, while keeping the remaining portion invested to allow flexible withdrawals.
“This approach not only reduces sequencing risk but can also enhance the investor’s capacity for risk-taking with their remaining investible assets.
“However, financial advisers face a significant challenge: how to demonstrate and evidence that their recommendations on these two components – guaranteed income and the remaining portfolio – are both suitable independently and optimally aligned together.”
Designed to support financial advisers and wealth managers, the new tool provides a clear methodology for addressing key questions.
These include issues such as how much guaranteed income should be purchased,
and what level of risk should be taken with the remaining pot of invested assets.
Just Group, which specialises in UK retirement products and services, is feeding live data into the new tool.
This, it said, will provide accurate and up-to-date intelligence on health, mortality and product pricing.
The above will enable advisers to get accurate insight from the Oxford Risk solution on the level of Secure Lifetime Income (SLI) to provide for their clients.
Just Group head of retail investment solutions, Stuart Slegg, said: “We’re very pleased to continue our work with Oxford Risk to support advisers achieve better outcomes for their clients in-retirement.
“The challenges faced by clients in-retirement are different to those accumulating wealth, so it’s important advisers can evidence how the solution they recommend meets their clients’ individual objectives.
“There’s a growing body of evidence that shows how including a proportion of Secure Lifetime Income within a drawdown portfolio can enhance client outcomes.
“How much Secure Lifetime Income to purchase for a client and how to adjust the remaining investments in the portfolio is a question that Oxford Risk have been working hard to solve.
“Its unique methodology provides advisers with a solution to this important question.”
Oxford Risk’s Retirement Income Suitability software solution is available now.
