Why a client in drawdown may want to transfer

  • Describe some of the factors affecting clients in drawdown
  • Identify reasons why a client may want to transfer
  • Explain some fears about drawdown

Making regular checks that the chosen level of income remains robust over the long term will bring your client valuable peace of mind and limit the potential for nasty shocks. 

The right provider

The market falls and low return environment has increased focus on the performance versus risk versus cost of drawdown providers. Good performance may have been achieved through taking a high risk investment strategy, but is this really what customers want? 

The level of risk needs to match the customer’s capacity for loss on the plan. 

As life expectancy increases, the impact of charges becomes more material to customers and so it is important to check whether the costs of the clients’ drawdown plan still stack up. 

The early weeks of the pandemic also had a huge effect on the level of service some providers were able to offer. There were widescale reports of long wait times on some provider helplines as the industry adjusted to the new environment.

While the situation has settled down since, advisers and their clients will increasingly opt for those who can meet their needs and continue to provide a good level of service through good, bad and challenging times.

Product flexibility

Another important consideration when considering a switch of provider is product flexibility.

With many clients looking for ways to pass on their wealth to younger generations upon death, advisers are increasingly aware that many older style drawdown arrangements do not offer full flexibility in relation to beneficiary drawdown.

These restrictions limit the options available to the beneficiary and to the adviser who is often advising the beneficiary for the first time. For pre-retirement clients, advisers are incorporating beneficiary drawdown functionality in their initial retirement advice.

For clients in drawdown, advisers are increasingly recommending transfers in drawdown. 

An adviser can advise the client whether their current plan supports the full range of drawdown death benefit options now available, including nominee and successor drawdown. 

It also provides an opportunity for the adviser to get to know and start building a relationship with the beneficiaries, potentially as current or future clients.

Compliance and regulatory pressures

And finally there is growing compliance and regulatory pressure on reviewing providers as customers move into drawdown and take income.

The FCA’s Retirement Outcomes Review sought to improve transparency and disclosure to drawdown customers.

The review was primarily concerned with the non-advised drawdown market citing weak competitive pressure and low levels of switching.

94 per cent of non-advised customers took out a drawdown plan with their existing provider compared to just 35 per cent of advised clients.