Get it right the first time

Some have argued retirees cannot expect to afford advice at-retirement, while competing voices argued they cannot afford not to. The truth depends largely on perspective and individual circumstances.

But for the majority of savers we believe face-to-face advice has become more valuable than ever before.

It has been claimed in some corners that so-called ‘robo-advice’ will remedy the advice gap and help the UK public achieve retirement income security in the process.

It has been claimed that so-called ‘robo-advice’ will remedy the advice gap

This strikes me as a lazy assumption. While it is undoubtedly the case that digitisation of the financial advice process will have a marked impact on the industry, with some consumers choosing to go down the ‘robo’ planning route, there is little evidence it will serve as a magic wand to fix the savings quandary.

In the US, the most evolved computerised-advice market worldwide, just 3 per cent of retail investment transaction were conducted through a robo adviser last year.

And in the UK, recent experience shows us that very few retirees are navigating their own way to pension information resources, even when they are industry-funded and government-endorsed.

Research shows that the robo-advice industry of today is primarily composed of small pots of money from relatively young savers. And while many people are open to some form of robo-advice, few are willing to let a computer make all their financial choices.

This is not to say that digital does not have a role to play. But there is no credible evidence demand for robo-advice will supersede the incumbent face-to-face model anytime soon. And face-to-face financial planning still has a number of advantages working in its favour that will continue to ensure it remains relevant and valuable to those approaching retirement.

Put simply, much of the retirement income decision process is simply too complex to be conducted optimally without a face-to-face conversation. The numerous risks and variables, tax and legislative hurdles to be overcome mean that processing and enabling a decision based on all the relevant information is extremely difficult without the help of real-time face-to-face interaction.

Equally, the risks involved in retirement planning and the challenges of securing a sustainable retirement income strategy mean that many decisions are irreversible or can have damaging long-term consequences if they are not fully articulated and understood. The consequences of getting it wrong are so severe that it is difficult to see how the subsequent ramifications can be conveyed through a PC monitor with the necessary visceral force.

Non-advised annuity broking, execution-only drawdown and robo-advice all have their place in the retirement income market. They exist principally for those that are unwilling to pay for full advice, or believe their needs are simple enough to be handled without a comprehensive financial planning service. Those individuals should be aware, however, that some of the robo-based advice options are not whole of market where sometimes whole of market is needed. A panelled annuity option means that customers may not get the best value. So while the “advice” may be low cost, the customer outcome is not improved in this example.

We remain in the early stages of pension freedoms reforms, which in a single stroke transferred huge longevity and investment risk away from insurance companies and onto the consumer.

While this is a great liberation for pension savers, there is a serious threat to retirement prosperity in the UK if consumers fail to grasp the gravitas of the risks they face in drawdown.

It will take years to come to fruition, but there will doubtless be casualties, in turn prompting consumers to place greater value on risk management.

By its very nature, a face-to-face relationship with a financial adviser delivers the peace of mind and security of a personal service from a qualified individual.

And it comes with the added layer of security that holistic financial planning will always consider a client’s wider financial circumstances and start from the very beginning of the client’s story when considering the best course of action to meet their individual needs.

At some firms, retirement planning starts with the basic assumption that income security is the ultimate aim. If you can achieve your desired retirement lifestyle and other financial objectives through an annuity, removing all risk from the equation, why not?

If an annuity does not fit the bill or client needs and objectives mean an alternative income strategy is required, advisers work backward to find the best income strategy to meet individual client needs.

We believe this approach forces clients to work through their retirement income plan rationally in conjunction with their adviser, mitigating the risk that clients leap into drawdown with dollar signs in their eyes and dismiss the importance of income security.

This measured approach to retirement planning means advisers will always be in a position to offer clients security and certainty in their retirement planning, which will always be the primary objective for the vast majority of people approaching retirement.

When times change it is important to change with them. And advisers have done just that since the introduction of pension freedoms last year.

Investment propositions and advice processes have changed significantly to reflect changes in the options available to clients at-retirement.

Advisers are facilitating access to sophisticated planning strategies unlikely to be otherwise available. A good example is access to ‘drawdown on the drip’, allowing clients to take regular income on an ‘encash-as-you-go basis’ and including a portion as tax free cash. As a result clients can keep the maximum level of pension savings fully invested and benefit from future growth potential.

And business models are adapting too. As client behaviours change, so advisers are adapting their charging structures accordingly. Many now set up fee structures that provide for customers that set-up an advised drawdown plan but change their intentions of circumstances at a later date and need to re-visit the plan design in a different context.

As long as the financial planning profession continues to deliver a compelling value proposition and change with the times, it will remain as relevant as ever for clients planning their retirement.

Richard Bartlett is head of retirement at Intrinsic