Flexi-access drawdown is outselling annuities by roughly two to one but there has yet to be a corresponding increase in demand for advice.
Recent research carried out by Zurich found that just 35 per cent of people in flexi-access drawdown are speaking to an adviser on an ongoing basis.
Despite this, evidence from the study – the largest of its kind on drawdown since the pension reforms – suggests that demand for drawdown advice could be poised to rise.
Here are five areas of growth for advisers to watch out for.
1. Clients looking for a drawdown health check
Drawdown is changing the way people want to engage with advice. The Zurich study found almost 28 per cent of people in drawdown are getting occasional advice or sought one-off advice before putting their pension into drawdown.
Instead of seeking full advice, this could point to a potential rise in people looking to dip in and out of advice to help with key decisions or to check they are on track.
How are advice firms set up to respond to this? And do advisers have the fee structure, or even appetite, to cater for the potential expansion of this segment of the market?
2. Ageing baby boomers
Unlike annuities, consumers in drawdown have to make decisions on their pension throughout the whole of their retirement.
As the population in drawdown grows and ages – led by the baby boomer generation – there is likely to be an explosion in demand for advice from those who may no longer be mentally or physically capable of managing drawdown on their own. Some 30 per cent of people in flexi-access drawdown said they will rely on a financial adviser if they can no longer manage their portfolio.
So-called cognitive risk – the risk of being unable to make critical investment decisions in later life – could trigger a surge in demand for advice.
Are sufficient numbers of young advisers entering the profession to cope with a potential boom?
3. Spouses and family members of those in drawdown
It’s not just people in drawdown who are likely to call on advice but their relatives too.
Almost one in five (17 per cent) people in flexi-access drawdown said they will rely on their children to look after their drawdown investments if they no longer can, while almost a quarter (22 per cent) will call on their partner.
Family members might be comfortable paying bills or checking bank balances but there is no guarantee they will have the financial capability (or will still be around) to manage tens of thousands of pounds invested in the stock market.
How many will, instead, turn to advisers to help them run the portfolio of a close family member?
4. Rise in vulnerable customers
With an older client base in drawdown it naturally follows advisers will encounter more vulnerable customers.
Advisers may need to develop new skills to manage these relationships, as well as putting in place additional processes to ensure their business can serve this growing population. It is also likely that the regulator will focus increasingly on vulnerable customers and the strategies firms have in place for supporting them.
Are advice firms prepared for the potential increase in vulnerable customers?
5. More women will look to get advice
Drawdown may trigger an increase in demand for advice among women.
According to Zurich’s study, women in drawdown were less likely than men to have any hands-on experience of investing – 41 per cent versus 29 per cent. On top of this, women reported having smaller pots, which they typically need to stretch out for longer.
Men had an average drawdown pot of £212,000, which at a 3 per cent yield secures an annual income of £6,360. Women had an average pot of £132,000, equating to an income of just £3,990.
This means women have £2,370 less per year and would need to find riskier investments yielding 5 per cent to match the retirement income of their male counterparts. Advice is likely to be key to helping women maximise their income in retirement, and firms that can engage effectively with women stand to benefit from this.
A growing population in drawdown presents new opportunities for advice firms.
But adapting to the changing needs of consumers is vital if firms are to maintain a competitive edge.
Alistair Wilson is head of retail platform strategy at Zurich UK
