Drawdown  

Adviser use of centralised propositions has risen

Adviser use of centralised propositions has risen
Megan Rexazin/Pixabay

The number of advisers adopting centralised retirement propositions is continuing to rise, edging up 5 percentage points this year.

More than half (55 per cent) of advice firms have one in place today, compared to 50 per cent a year earlier, according to a report by M&G and NextWealth.

A further 23 per cent of firms said they intended to introduce one within the next 12 months.

While centralised investment propositions are a familiar concept among advice firms, taking a similar approach to decumulation is less common.

“CRPs are growing in popularity with advisers year on year, particularly for larger firms,” said NextWealth managing director, Heather Hopkins.

“This is no doubt because CRPs offer structure and processes that ensure clients of multiple advisers within a firm receive advice in line with the firms’ best practice policies.

"This not only reduces risk for firms, it also ensures all clients are equal in terms of the level of service and advice they receive."

An increasing number of advice firms are also going “outside the framework” when giving retirement advice in an effort to offer a more bespoke service to clients, according to M&G Wealth director, Justin Blower.

“Over the three years of this survey, we have seen firms adopt standard processes and approaches to defining a safe withdrawal rate and increase use of tools to support planning decisions. 

“Importantly, the CRP is a framework within which to deliver retirement advice - financial advisers report that they are now more likely to go outside that framework, as they continue to deliver a bespoke service to clients.

"The CRP provides a set of guidelines, but individual clients may need different products or approaches", he added.

The research, conducted among 201 advisers in February 2022, found among the most widely used components of a CRP is a strategy to determine sustainability of withdrawal rates. 

Some 79 per cent of financial advisers working in firms with a CRP said this is included as part of the service. A further 41 per cent said the CRP includes an approach to dealing with sequencing risk.

Of the various strategies firms follow to determine suitable withdrawal rates for clients in drawdown, the breakdown was as follows:

  • 35 per cent said they use a fixed rate or range (e.g. the 4 per cent rule)
  • 32 per cent use a modelling tool like Timeline
  • 10 per cent or less said they assess based on annuity rates, recommend clients only take portfolio income or use GAD rates.

Part of the survey also looked at what advisers are worried about most. En masse, they said they were equally concerned about inflation as they were about lower than expected returns in a year which has so far been blighted by market volatility.

Some 87 per cent of the UK’s adviser population - almost nine in 10 - said market returns and inflation were the biggest challenges facing them and their clients.

Advised platforms shed a collective £15.6bn in the first three quarters of this year, with only one platform recording actual asset growth. Meanwhile, inflation is rising at 7 per cent - its fastest rate for 30 years.