“There has been little in the way of product innovation in retirement income products since pension freedoms came into force.” That’s according to the FCA’s latest Sector Views, published last week.
From advisers we’re getting the same feedback: they want investment technology and products that are suitable for clients in drawdown. However, the feedback we’re getting from product providers and platforms suggests that they can’t create solutions until they get their heads around advisers’ post-retirement propositions.
It’s a chicken and egg situation: advisers need the right ingredients to define their investment propositions and providers need to know the investment propositions to create the right products and services.
One aspect is charging. The traditional accumulation advice model looks less sustainable in decumulation, especially when MiFID II sheds even more light on charges. An adviser charging 1% on a 4% yield looks like the adviser walking off with a quarter of the client’s income. It will also compound the impact of any sequencing risk. Telling a client that they need to reduce their income because of declining markets will go down like a lead balloon if the adviser is still taking their full share!
We’re therefore looking for new advice models for retirees with finite pots and no means to top them up. Drawdown with ongoing advice appears more sustainable for wealthy clients expecting to hand assets onto future generations and with low risk of outliving their pension. The difficulty is developing a service that works for less wealthy clients. Defining this service is key to developing the right services and products that can deliver it cost effectively.
One option is a more trimmed back advice offering, perhaps continuous drawdown but with reviews every few years. This looks remarkably similar to drawdown pre-pension freedoms. Back then, drawdown was effectively reserved for the wealthy. Flexible drawdown was open to those with enough secured income. For those without, capped drawdown was available, with ‘GAD’ recalculations at least every three years.
We’re currently working on a research piece looking at advisers’ retirement propositions, gathering the views of advisers and product providers. If you’d be willing to share your thoughts then please get in touch.