Show me the money

Alistair Wilson

The platform industry successfully cleared the hurdle of implementing last year’s landmark retirement reforms.

But as individuals embrace the new world of pension freedom, I belive platforms are facing a new obstacle: how to get income efficiently to clients.

Recent analysis by consultancy The Lang Cat showed the average age of an advised platform client is 58 - and the average full retirement age is 64. This means the accumulation part of the platform experience can last for as little as six years, compared to as long as 25 to 30 years in retirement.

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The bombshell is clients now typically spend a bigger part of their platform experience in retirement rather than accumulation. For clients at least, platforms are becoming as much, if not more, about delivering an income than helping them to accumulate assets.

Platforms in general have been slow to react to their new role as income machines. But I predict it won’t be long before clients start demanding greater flexibility over when and how they are paid.

With thousands of people choosing to invest their funds in drawdown, instead of annuities, the ability to deliver income payments to clients efficiently has the potential to become a major differentiator.

At its simplest, this is about delivering one regular consolidated payment from across all tax wrappers, or the capability to offer clients income payments on the date of their choice, not the three or four dates that a platform’s system can manage.

All the clever functionality that goes into planning and creating a pot from which income can be paid is, naturally, vital.

But with more people relying on income in retirement, the need for flexible and sophisticated controls for the adviser to ensure their client gets paid when and how they want is now king.

If you watch platform development road maps closely over the next few months, I believe you’ll see more and more income management control popping up.

While platforms need to provide great choice and control over income, so too do advisers.

With an increasing number of clients holding their funds in drawdown, advisers should make sure their current processes for managing client income on platform are robust and scalable.

For example, it’s common for platforms to require advisers to hold up to 3 per cent of a client’s pension or ISA wrapper in cash in order to make payments out. In cases where the adviser controls the cash account, and the level drops below the threshold, the computer says no and the clients doesn’t get paid.

Whether or not it’s practical to keep checking a large pool of client cash positions will be up to individual adviser firms. Platforms with auto-disinvestment, which cashes out some funds to ensure the clients get paid, is one way of managing this risk.