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Advisers weigh up impact of pathways on advice

Advisers weigh up impact of pathways on advice

Advisers have mixed views on what effect investment pathways will have on the profession with one third believing demand for advice will fall.

Research from Aegon, published yesterday (February 1), found 32 per cent of advisers thought the newly introduced pathways would see fewer people turn to advice and 1 per cent thought it would significantly reduce demand.

A further 44 per cent of the 212 advisers surveyed believed investment pathways would have no effect on demand whereas 11 per cent thought it would cause more people to seek advice.

Ricky Chan, director and chartered financial planner at IFS Wealth and Pensions, said he expects pathways to further disengage savers with their money as they would stop them from taking any active interest in their pension. 

Mr Chan said: “We’ll have new generations of people going through automatic enrolment with default funds and contributions, all the way through to retirement with default investment pathways being implemented. 

“I see that this is likely to reduce the demand for financial advice at an important crossroad in retirees’ lives, when arguably good financial advice could have made a significantly positive impact on their wellbeing and future.”

Tim Morris, independent financial adviser at Russell & Co, agreed that people would unlikely be encouraged to take advice but said the pathways could also have positive effects on savers.

He said: “They may discourage bad habits such as savers thinking their pension should always be moved into cash as they near retirement. 

“That is often a hangover from the old ‘lifestyle’ funds which automatically de-risked pension funds as they came within 10-15 years of retirement.”

But he said he would consider pathways for clients, albeit more for comparison purposes.

Providers’ perspective

Investment pathways have been introduced for non-advised drawdown clients from February 1 in order to reduce the number of savers making unwise investment choices, such as taking on too much or too little risk.

Providers must make available a range of four investment pathways, to be matched with people's retirement objectives. It’s then down to the individual to choose whether to select one of the pathways or to pick from the wider range of investment funds on offer.

Steven Cameron, pensions director at Aegon, said mixed views on the effect of these pathways were to be expected as much will depend on how they are presented and explained to savers.

Pointing to the research he said: “Interestingly, 11 per cent of advisers expect pathways to increase demand for retirement advice, as by going through the pathways process, customers gain a better understanding of the importance of the choices they’re making, and the limited help pathways offer. 

“We’d see this as a positive outcome, as professional advice will offer a personal recommendation on not just where to invest but also on how much income can safely be taken to last throughout life or meet other retirement objectives.”