Financial advisers enhancing their retirement propositions

Financial advisers are adapting their retirement offerings and increasingly turning to centralised retirement propositions, as the need for investment advice has grown more complex with greater pension freedoms, research has found.

The 2020 Financial Adviser Survey, published by leading global fund data and technology company, FE fundinfo, has found that nearly half of advisers (49%) now have a centralised retirement proposition in place – an increase of 14% since 2019. This compares to 85% of advisers who have a centralised investment proposition.

This rise coincides with a growing wariness among advisers over the issue of Defined Benefit (DB) transfers and how they should work with DB clients. While 46% of advisers said they continue to advise DB clients as they have always done, the majority (55%) said they have altered the way in which they handle this segment of the market. Nearly a quarter (24%), the research reveals, have stopped advising DB clients altogether, while 11% have increased their charges for DB pension transfer services. Nearly one in ten meanwhile (9%) said they have developed a specialised proposition exclusively for these clients.

For most advisers, the costs associated with Professional Indemnity (PI) insurance and DB transfers is proving prohibitive. Among the respondents, PI insurance was repeatedly singled out as a major barrier to offering DB advice.

FE fundinfo’s David Scholes said:

“The cost of running an advice firm is increasing year by year. In many cases this is largely down to PI insurance, where it’s not uncommon for PI fees to have increased significantly over the years, particularly for those firms providing DB advice. The whole area is riddled with potential lawsuits, and PI providers are exiting the market, leaving fewer to offer the cover and that itself pushes the prices even higher.”

Despite having been initially slow to develop tailored investment solutions and a lack of available products, the 2020 Financial Adviser Survey also reveals that while advisers have now increasingly been working hard to enhance their retirement propositions, for clients, their priorities remain the same. Sustainability of income overwhelmingly remains their chief concern, with 71% of advisers saying this is their clients’ most important consideration, with preservation of capital (21%) being the only other significant factor.

As the landscape changes further with the first tranche of retirees to enjoy pension freedoms leave the workforce which has then been followed by volatility in the markets in the wake of the Covid-19 pandemic, FE Investments’ Rob Gleeson believes that the industry will need to consider what sustainability of income means in the long run:

“The most important question the industry should be asking is ‘what is sustainability of income?’ We are finding that even for those with large pension pots, they are not generating levels of income which might have been expected. In five years’ time we hope that this will have changed and IFAs will have much more experience in adjusting their clients’ retirement thinking into what sustainability of income looks like.

“With the markets experiencing high levels of volatility in the wake of the Covid-19 pandemic, sustainability of income is likely to become even more of a worry amongst post retirement investors. It is therefore crucial that as an industry, we provide transparency to shape their thinking and deliver a clear understanding of how to meet their investment goals.”