Santa let me down. I had hoped that my Christmas stocking would contain the findings of the FCA’s thematic review of retirement income advice but that’s now been delayed until later this quarter. Maybe the Easter Bunny will come through for me.
The FCA has said the review will be “an important indicator of how firms are implementing the Consumer Duty”.
Our own research report, Life Beyond Work: The changing face of retirement suggests that many advisers recognise they may need to revise their approach to retirement advice but would value some clear direction from the regulator before doing so. It therefore seems inevitable the review will find some areas where change is needed.
I’m hopeful, perhaps even confident, that the regulator will recognise how challenging providing effective retirement advice is. It is almost certainly the most difficult financial planning problem, full of uncertainty and technical complexity.
See also: Advisers say economic climate prompting clients to change retirement plans
While there will always be room for improvement, it’s important that the FCA and industry can work constructively to ensure the supply of quality retirement advice is expanded, not constrained further. While retirement advice is important today, it’s set to become even more so for all involved.
Client needs in retirement are pretty consistent – to maintain their standard of living until they die and not run out of money. However, client circumstances are changing. The decline of defined benefit pensions means the next generation of retirees will be more reliant on retirement savings than the boomer generation.
Sandwiched between ageing parents and boomerang kids, many of today’s retirees also face greater demands on their wealth than their parents did. Add in more complex family structures and meeting those core client needs becomes even more difficult. Retirement advice will become even more complex and increasing its accessibility will be key.
Assets for clients who are approaching, at, or in retirement already constitute the majority of advised assets and almost certainly generate the lion’s share of adviser fees. The need for ongoing advice in retirement is, to my mind, indisputable, at least for clients who remain invested.
See also: Most investors not reviewing their pensions annually, research finds
Keeping clients on track against their retirement plan, helping them optimise their tax position, and navigating the inevitable bumps in the road are all value-added activities that merit an ongoing fee.
Demand doesn’t seem to be an issue either. Only 16% of advisers told us that attracting new retirement clients was a business challenge for them. With fee pressure mounting and challenges around the value of advice, retirement clients are likely to become even more important to adviser businesses and those that support them.
Success story
Effective and affordable retirement advice is also essential from a government perspective. The introduction of automatic enrolment has been a huge success by almost any measure. However, it can only achieve its policy objective of improving retirement living standards if participants have the right support when deciding how to access benefits.
Evidence to date suggests that many can and do make irrational decisions when accessing benefits, drawing too much income and/or paying too much tax. As pension pots grow, the importance of converting assets to sustainable income will increase. While the FCA’s recent thoughts on enhancing guidance may help people avoid some retirement mistakes they will not be a substitute for advice.
An effective and efficient retirement advice market is essential for all participants – clients, advisers, financial services firms, and government. To achieve this, we need to work together to take on the challenges of changing client circumstances and the more hostile market and economic environment that we’ve seen in recent years.
A pragmatic and constructive approach to developing the regulation of retirement advice is essential to achieving this and the FCA’s thematic review will set the tone for this important discussion. I hope the Easter Bunny doesn’t disappoint.
Richard Parkin is head of retirement at BNY Mellon Investment Management
