The message is starting to get through – providers must focus on what is best for our customers. Taking advice is a key driver here, and, although no one knows the outcome of the Financial Advice Market Review yet, we know the potential it has to create uncertainty in the advice market but also the opportunity here to finally promote advice.
We all know there is a growing need for advice and a subsequent gap that is emerging as customer awareness increases alongside a need to make decisions in a complicated world. Frictionless is becoming the norm, driven by the digital world as consumers look for transactions to be made easier and intuitive.
Research highlights growing demand for alternate advice solutions – particularly digital solutions supported by human touch points. Customer advice will have to be relevant, with comprehensive solutions to optimise income and investment options, as well as providing security and flexibility at and throughout retirement.
Blending of varied products and features will be needed, with ‘one size fits all’ solutions no longer good enough.
The winners will be those that can take on these challenges, delivering cost-effective and robust advice solutions.
We have all seen a significant rise in interest in the benefits of automated advice, and there is real long-term value in providing advisers with market-leading tools and services to allow them to viably access smaller pots, making advice affordable and accessible for those needing it.
This opens up greater opportunity and client bases for advisers. We believe the advice gap can be closed with low cost, automated solutions and lobbying the importance of regulated advice and so avoiding weaker ‘simplified’ advice models.
Rather than choose one product, we believe you can tailor what you need from a range of products, and to avoid the complexity of managing multiple items, put them all together – in one place and managed through one account. Pension freedoms have highlighted what we have always believed, that one size should not fit all – customer outcomes are better served by blending in income, security and flexibility where a customer needs them to be, not where an individual product needs them to be.
We are already seeing emerging customer trends developing, matching where we believe customer needs are: security, certainty, and flexibility. This is not easy to do if you are looking at single product providers, for example:
Blending drawdown, fixed-term annuities and guaranteed funds to create secure yet flexible retirement income.
Retirement phased into three to five-year planning horizons
Taking enhanced annuities later in life (between 70 and 75) where they represent better value for money and income certainty is more important.
It is estimated that between 30 per cent to 44 per cent of defined benefit members will want to transfer to a defined contribution environment.
Employee benefit consultants also agree that members of DB schemes will want to take advantage of the pension freedoms but are not yet clear as to the extent it will happen. More choice equals more confusion, and the need for education and guidance for scheme members interested in taking advantage of the flexibility and choice is greater than ever.
Trustees need to exercise their duty of care for scheme members by providing a service that de-risks decision-making and switching from a DB to DC environment, ensuring a good customer outcome for all. Members need to go through a process that has educated, informed and advised them to reach a decision appropriate to their circumstances – and in a safe and controlled environment with a strict due diligence process.
I strongly believe the right proposition will always lead to good customer outcomes and should set the bar high in terms of good practice – and any proposition will of course need to be endorsed by employers and trustees.
John Perks is managing director, retirement solutions at LV=