For several months now there has been an ‘advice vacuum’ surrounding pensions. Many key issues relating to the new pension freedoms were unclear, even to financial advisers, and many clients were delaying decisions until April 2015. I talked about this in my paper ‘The Retirement Advice Survival Guide’ back in October – but at last it seems the void is being filled.
Financial advisers are now in a position to give advice that takes into account the new retirement options. Not only do we have enough details about the new rules, but more and more clients are waking up to the importance of advice.
So now we have a new retirement advice proposition. But what does it look like? And how can advisers take advantage of the new opportunities? The key to both these questions is to understand the new client journey. To say that retirement is a journey not an event is hardly original – but if anything it’s truer than ever now.
Understanding the new journey of retirement will enable advisers to:
Attracting new clients
Many more clients will need advice, but how will advisers find them? One answer will be to attract potential clients at the time they start thinking about their new retirement options. In the past many clients started their retirement journey when they were told to ‘shop around for the best annuity’. This has been replaced with ‘compare your retirement options’ – a much broader proposition.
This means that it’s the quality of advice, not the price of the product, that becomes the most critical factor. Advisers are ideally placed to market their services on the basis of quality advice and personal service. Furthermore it should be possible to woo clients both before and after they have taken advantage of the Government’s free guidance service.
Preparing for the journey
One of the many advantages of using a financial adviser is that they can help their clients take a longer term view of their retirement needs. This includes income requirements, risk management and death benefits. In my experience, better prepared clients end up with improved outcomes because they are more able to analyse the advice given and to act on it.
Better quality advice
In order to obtain the best outcomes for clients, advisers need to have not just excellent fact finding skills and superior product knowledge; they also need the right ‘tools of the trade’. In the past, a lot of advice was black or white: for instance, annuities for smaller funds, drawdown for larger funds. This is an exaggeration, but it highlights how radically things have changed. What is needed going forward is a more balanced approach, with the recognition that the best outcome may be obtained with a combination of product solutions.
So what of these ‘tools of the trade’ that are necessary to deliver better quality advice? They include: an understanding of longevity issues, an analysis of the key risks, and a thorough comprehension of tax-efficient income strategies. In my forthcoming paper on unit-linked annuities, I consider the risk dilemma: ‘Why do many advisers and their clients take either too much risk or too little – rather than seeking the optimum risk solution?’ A proper tool-kit for the job is essential.
More efficient advice process
One of the new opportunities will be to try and fill the advice gap. There are a significant number of potential new clients, often referred to as ‘middle Britain’ or the ‘mass affluent’ who think advice is expensive and complex.
We know that is not true and one the best way of dispelling this myth is to demonstrate to clients that you understand the important issues facing them as they journey through retirement. The advantage of having a step by step process is that you can; treat your clients fairly, be totally complaint and provide a cost efficient process.