Under pressure: Financial advisers should be updating retirement strategies as needs change

A survey conducted by FT Longitude for BNY Mellon Investment Management shows that many financial advisers are finding retirement planning challenging. More than half (56 per cent) agree that retirement clients have specific investment requirements, but say they do not have the tools or skills to advise them differently. This is a problem: it is stopping financial advisers from making the most of the retirement solutions available to them and tailoring their advice.

Ask the right questions

One obstacle to giving clients tailored advice is advisers’ ability to gain the necessary insights to create an effective retirement plan. This is crucial, because many clients do not have a clear understanding of their income requirements and how they will match them with their expenditure.

“Advisers need better questioning skills to enable them to build a proper plan,” says Christian Markwick, Head of Adviser Support at the Verve Group. “Many have not been used to doing this. It’s all about being able to map out a client's needs and spending patterns even if people don't always know what they want to spend. But your job as the advisor is to extract that information because you can't build a plan without it.” The recent retirement income paper from the FCA commented on this too and the lack of Know Your Customer to demonstrate why the recommendation was suitable for the client.

Tailored advice still needs some consistency

Another challenge for advisers is that financial advice has become more complex and nuanced, which can create a bespoke approach that is difficult to scale. So advisers see cost-effectiveness as the number one barrier stopping them from developing their approach to retirement advice. This is especially pronounced among larger firms, which may struggle to embed a consistent approach.

What is stopping you from developing your retirement income investment approach?

The BNY Mellon IM research finds that financial advisers are approaching retirement planning inconsistently. Many firms — particularly the ones that employ many advisers — are offering different advice and solutions to clients who are in similar circumstances.

“In a sense, we've got a very fractured ecosystem of tools, which means we've got a very fractured ecosystem of data,” says Andrew Moore, financial planner and managing director at Goodmans Financial Planning. “Which means I’ve got a lot of people running around doing admin to make up for these issues.”

Natural income is not for everyone

Despite these challenges, advisers should aim to offer retired clients a wider range of income solutions. For example, attractive yields on high-quality bonds and some dividend-paying blue-chip shares have made natural income strategies a good option for retired clients who have their basic needs met by guaranteed income.

Yet many advisers don’t offer natural income strategies at all.  The BNY Mellon IM research reveals that advisers are being held back by operational challenges.

Why don’t you recommend natural income strategies to more clients?

Clients who are retiring have different needs

Part of the problem is that some advisers are not making enough of a distinction between accumulation and the decumulation stages as clients head into retirement: 75 per cent of the advisers in the BNY Mellon IM research say they do not need to alter their investment strategies between the two stages because long-term investment principles apply universally.

But this could be challenged under the Financial Conduct Authority’s Consumer Duty rules. In its recent review of retirement income advice, the FCA said that advisers need to distinguish how they think about risk for retirement income clients from their approach for clients who are still accumulating wealth.

“Clients that are in decumulation have very different characteristics, attitudes, circumstances and capacity for risk,” says Richard Parkin, head of retirement at BNY Mellon IM. “This will require advisors to think about doing something different for retired clients — not just from an investment point of view, but perhaps also in terms of platforms and advice propositions.”

But this also poses a potential dilemma for financial advisers. “To make the money last, I need to increase their risk profile to get them the money they need to go through a cost of living crisis. It’s trying to resolve those kind of conflicts that is challenging,” says Michelle Lambell, chartered financial planner at The Minster Partnership.

It is an issue that will become more pressing as a new generation of clients approaches retirement with more complex needs, and often with smaller pension pots than the previous generation.

A combination of consistency, optimal use of the right tools, platforms and technologies will help advisers meet the needs of retirement clients in a tailored and cost-effective way.

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