'CRPs were a good idea until inflation rates went up'

The wealth proposition director of The Openwork Partnership says recent bond and equity movements, coupled with higher interest rates and inflation, have made it impossible to group clients into centralised product strategies for retirement income.

He points to market falls last year, following the ill-fated "mini-Budget", which saw the inverse relationship between equities and bonds uprooted as both asset classes lost value simultaneously, meaning fixed income's traditional role as diversifier was rendered ineffective.

For many people at the beginning of their retirement this would have had very damaging consequences due to the risk of pound cost ravaging, the effect of having to cash in increasing amounts of the pension fund to support a regular income when markets are falling.

It goes to show that centralised product solutions for clients have lost their place in retirement planning, says Owen. Though he does believe in streamlining the advice process.

"Central retirement proposition was a really good idea until inflation rates went up," says Owen.

"Those models worked until the pandemic. But bonds for a period of time weren't a secure asset. So that would have been the wrong solution for clients.

"A central retirement proposition is perfect if it's an evidence-based advice framework, it doesn't work if it's a 'I've got a great idea for you, if you put all your clients' assets in this they're all sorted'.

Streamlining advice

Openwork uses a suitability of advice framework covering the client journey from the first meeting with their adviser to the end result, which ensures some uniformity in the way retirement advice is given.

This covers all the steps advisers need to follow to give clients the optimal result. A centralised system then monitors whether this has been the case.

The system works on the premise that everybody's retirement goals are different, so their product mix is different, but the approach to advice is the same. 

Owen says: "Products are useful but what we're going to have to remember is every client is absolutely unique and they've got a unique amount of assets in different places to use in different ways to do unique things in their retirement.

"And I know we can have target markets and stuff like that. But the target market is somebody who wants to retire and can have a meaningful and purposeful existence in that retirement and stay healthy and fit."

He says with what happened last year in markets and the economy, the product mix for retirement income has changed.

With bonds falling, against a backdrop of rising interest rates, cash has "become really interesting, and so have annuities", he says.

The typical drawdown rule would be to take 4 per cent but nowadays it is possible to get a rate of 4.75 per cent inflation-linked from an annuity, he adds.

Owen joined Openwork as wealth proposition director nine months ago, having previously worked for a large strategic partner of the Quilter network. He is responsible for the products and services Openwork's advisers offer to their clients.

He advocates technology as especially helpful for advisers in the retirement income space, with products such as Voyant and Timeline helping them to plan a person's retirement over time and according to different scenarios.

An efficient business

The way Openwork tailors its retirement advice to the aspirations of individual clients does not mean it is running an inefficient business.

Openwork is keen on integrating technology where possible and uses AI-based system Zenith.one to allow it to connect its central system, planning software, and marketing packages.

"We're at this moment in time where AI machine learning is becoming really useful and available," Owen says. And it saves the firm money, as it effectively replaces administrators.

It then works with providers such as 7IM, which offers a retirement income solution, which allows advisers to use a self-invested personal pension, general investment account and an Isa and treat them as a single portfolio aligned with the client's risk profile.

The CII needs to step up to the plate and rethink what they offer, is it really fit for purpose anymore?

It includes a bucket approach to retirement, whereby short-term income is kept secure, and funds for long-term income are put in growth products.

The solution also allows a 'secure lifetime income' to be paid into the Sipp via a link up with provider Just, which can be taken as tax-efficient income or reinvested.

Owen describes this as an "annuity which sits on an investment platform", allowing people to build "some certainty" into their plan alongside their other investments.

"Those sorts of tools are really, really useful to advisers and clients," says Owen, "you've got an aggregation of most your financial assets. You've got money market funds for cash accounts, you've got the 7IM investments on there, and then you've also got your Just SLI, which makes things more simple."

But he draws a clear line between product solutions and financial planning.

"This is where you get the conflict between what financial planning is and what products are. Financial planning is the skill set: people's needs, behavioural finance, providing great outcomes. The product set is useful tools to use," says Owen.

For Owen the hardest part of the advice process is the conversation, for everything else there are tools.

He says AI technology has evolved greatly to help advisers with those conversations. He cites products such as open data platform Moneyhub, which allows advisers to see all their clients' expenditure in one place.

"People will give you a figure and it's rarely accurate. If you give them more time to consider it, it takes a few meetings to get something there. Now with these open banking tools, people can say I earn X amount a month and I have Y.

"So because of these different tech tools that are coming out... we can say to somebody, use your app, keep your banking and finance up to date, let's import that into our system... then we can project it forward. Then you can have a great conversation."

However, platforms have more to do when it comes to innovation, says Owen, such as around fees. Though he adds the consumer duty might force them to do just that.

"It makes more sense to charge fixed fees in retirement. And some of the platforms have struggled with that because they've never set the code to pay fixed fees," he says.

Offering onshore bonds is another area he wants to see improvements in, as well as cash flow planning technology. "There isn't a lot of disruption [outside of the four main providers] to deliver tools that are really easy to use," he says.

Advice is changing

Retirement income has come a long way, having undergone significant reform in 2015 under the pension freedoms, and it's now changing again as the economic environment changes.

Owen says as a result the modern adviser is not just about having a diploma, "these are behavioural scientists, these are people who understand people, who can guide people [towards] making the right decision, but also with a very, very high level of qualification or knowledge". 

He says the current economic situation is new to many younger advisers, who have likely never given financial advice in a higher interest rate and high inflation environment.

Adviser training therefore takes centre stage at Openwork. The firm has a learning management system, which gives advisers access to training content and at the same time feeds back to management about what people are learning.

It offers training to advisers in soft skills as well as their technical abilities via face-to-face learning, working with adviser mentors and peer groups.

But when it comes to training through professional bodies they are not doing enough, Owen says.

"The CII needs to step up to the plate and rethink what they offer, is it really fit for purpose anymore?

"There is a great opportunity... to have a retirement strategy exam. It doesn't probably need to be mandated by the regulator, but I think people are going to have to do it anyway. To take these qualifications, these extra level six qualifications, to give them that level of confidence to advise in this area. So we are definitely pushing that."

carmen.reichman@ft.com

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