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Do advice firms need a centralised retirement proposition?

Can a centralised retirement proposition help deliver the best outcome for clients?

Akademia screen shot

Mike Barrett


Akademia - Centralised Retirement Proposition

By Mike Barrett, lang cat Financial

Can you believe it has been more than six-and-a-half years since the RDR was introduced to the UK? Time certainly flies when you are having fun. And, as well as having fun, we’ve been able to identify a number of positive trends emerging as a result of the changes introduced in December 2012, all of which are shaping the advice market we know and love today.

One of the starkest trends has been the rise of the centralised investment proposition (CIP) within advice firms. Our research shows that it is incredibly rare for a firm to be constructing a bespoke portfolio for every client who walks in the door. Almost certainly there will be some sort of CIP in place, with 86% of firms doing exactly that. Typically, within the CIP, a range of different solutions will be deployed to meet different client needs. For example, a combination of model portfolios, multi-asset funds and discretionary solutions will be used as appropriate.

Whilst RDR was undoubtedly a significant change for the advice profession, arguably the bigger change came with the introduction of the Pension Freedoms. This has transformed the whole industry, creating a demand for advice at retirement, and in many cases the need to stay invested well into your later life. However, whilst we know that the “at retirement” market is where many advice firms are focussing their attention, our research shows that very few have created a Centralised Retirement Proposition (CRP) to go alongside their CIP. A total of 73% of firms say that clients “by and large stay in the same investments.”

Is this a problem? Well, the FCA do not go as far as saying “yes”, but it’s certainly something that is on their radar. Its 2019 Sector Views document] states that “Some adviser firms have not yet updated their investment strategies for decumulation clients. In addition, they may not have adequately considered decumulation risks.” They are not saying that firms have to have a CRP (and a CIP), however the last point about adequately considering decumulation risks is crucial.

To be fair, the above quote is simply a couple of sentences in a document that covers all of the markets the FCA regulates, there is a bit more detail about exactly what is expected of advice firms contained with the PROD handbook and, in this instance, we are talking about hard & fast rules.

PROD 3.3.10 states that Distributors (advisers to you and me) must “identify the target market and their distribution strategy using: (1) the information obtained from manufacturers; and (2) information they have on their own clients.” This is a rule, and is supported by some additional guidance (PROD 3.3.10):

“In identifying the target market and creating a distribution strategy, distributors should consider:

  1. The nature of the financial instruments to be offered or recommended and how they fit with end clients’ needs and risk appetite;
  2. The impact of charges on end clients;
  3. The financial strength of the manufacturer; and
  4. Where information is available on the manufacturer’s processes, how efficiently and reliably the manufacturer will deal with the end client at the point of sale or subsequently, such as when complaints arise.”

For more information, watch this Akademia session alongside John Porteous from Charles Stanley, discussing the topical subject of Centralised Retirement Proposition – our discussion focused on three broad areas:

  • The core issues facing customers and risks in retirement
  • How best to go about building a centralised retirement proposition.
  • If a centralised retirement proposition can exist yet still be independent.

Watch the video today and collect CPD

Did you miss John's article last week?

Pension freedom means holistic financial planning is vital

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