Should you have a centralised retirement proposition?

Supported by
Scottish Widows
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Supported by
Scottish Widows
Should you have a centralised retirement proposition?
Credit: Pixabay from Pexels

Centralised investment propositions are a familiar concept among advice companies, but a similar approach for clients in decumulation appears to be less common.

Four in five who were surveyed for Aegon’s Adviser Attitudes 2021 report said they had a CIP, but the research found that centralised retirement propositions were less common among advice companies, at 53 per cent.

“This is surprising five years on from pensions freedoms, given that retiring investors make up such a large proportion of their client base,” the report says.

Indeed, 62 per cent of adviser assets are for clients receiving retirement advice, according to separate research on CRPs by NextWealth for M&G Wealth.

How common are CRPs?

M&G Wealth and NextWealth’s study similarly found that half of companies had a CRP, and one in five (20 per cent) said their company intended to introduce a proposition during 2021, bringing the total proportion of companies with a CRP to 70 per cent by the end of year, if realised.

Advisers whose company already had or intended to introduce one, identified benefit to the client (31 per cent), business efficiency (20 per cent) and meeting regulatory requirements (18 per cent) as the greatest benefit of a CRP.

And three in seven companies (43 per cent) that already had a CRP said they did not encounter any particular challenges to rolling it out across the business.

Advisers at larger companies were also more likely to have a CRP, NextWealth found. More than half (54 per cent) of advisers at companies with more than five client-facing advisers had one, compared with 40 per cent of sole traders.

Indeed, half of companies with more than 10 advisers said the CRP was a requirement, and that anyone wishing to go outside its scope must justify doing so.

On the other hand, the majority (79 per cent) of advisers whose company did not implement a CRP, or did not intend to introduce one, said the main reason was because they preferred to tailor advice to each client individually.

“We appreciate that some advisers manage drawdown manually. However, a well-structured CRP demonstrates a robust, compliant and scalable process to deal with clients in decumulation,” says Mark Duggan, director of sales and marketing at Bordier UK, a specialist investment management company.

Jan Holt, strategic relationship manager at Scottish Widows, adds that a CRP demonstrates good governance, improves business efficiency, reduces business associated risks and improves client outcomes. She says: "A CRP provides a framework for recommending how income can be delivered sustainably throughout retirement and also how other client needs and objectives may be met.

"However, if too narrow, a CRP won't cover all of the considerations that may have a bearing on the most appropriate recommendation for a client."

For those hesitant about CRPs, NextWealth’s research indicates that even advisers whose company has a CRP have scope to go outside the proposition and consider bespoke solutions for clients, with a quarter saying they do so once every six months.

“The main drawback appears to be that advisers find them too limiting,” says Alasdair Wilson, investments techspert at The Verve Group. “But I believe this is just a misunderstanding that every client has to go via the CRP process, which isn’t true at all.

“In the same way as a CIP, you cannot cover every eventuality regarding client goals and needs; this kind of documentation is just to cover the client segments, which can feature some degree of repeatability in terms of processes.

“There could also be some suggestion that clients could be shoehorned into solutions that aren’t ultimately suitable; however, a well-constructed proposition should leave allowances for where the solutions in the CRP aren’t ultimately suitable for the end client.”

The case for CRPs

Having a framework that enables companies to deliver robust retirement advice consistently and at scale is essential, says Justin Blower, director of sales at M&G Wealth Platform.

“In the heavily regulated world of financial planning, treating customers ‘fairly’ is synonymous with treating them ‘consistently’. Using a framework also helps to demonstrate your process to the regulator as well as your clients,” Blower adds.

“[Our research] found that as well as enabling firms to deliver retirement advice more efficiently and consistently, it also helped improve how advisers articulate the retirement proposition to clients and therefore support client acquisition and retention.”

Blower also says that while a CIP focuses on suitability and investment selection, a CRP encompasses many more aspects of the planning process, including cash flow modelling, withdrawal strategy and longevity assessment.

“The CRP is arguably a more nuanced and multi-layered beast, and the time you take to develop it must reflect that. You shouldn’t expect your CRP to work perfectly from the off.

“Refining tools, questionnaires and investment choices may require practical experience to get right. Training may be required to get advisers up to speed on each element too.”

Duggan at Bordier agrees that a CRP is much more complex than a CIP.

“The approach to the investment strategy may have to change considerably, as in our view decumulation is not performance-linked but volatility-linked and much more about a steady/safer journey of travel.”

Holt says: "A CRP shares the same values and objectives as a CIP, but deals with more complex decisions and a different set of risk as clients move from building wealth to generating sustainable retirement income.

"This means that firms will need to think more broadly about the components of a CRP, beyond investment strategies. This isn’t difficult, but additional things to consider include how to:

  • carry out retirement fact-finds to understand needs and objectives;
  •  identify and assess the risks in retirement,
  • assess a client’s capacity for loss once they start to spend their savings and (typically) have a high degree of dependency on them, evaluate the range of withdrawal options available and select those which will meet client needs and mitigate risks;
  • where drawdown is being used, select suitable investment strategies to match client needs within their risk profile and ability to bear loss."

And Chris Jones, proposition director at Dynamic Planner, says it is not just about a fund or model portfolio.

“The CRP or distribution strategy should include:

  • How you are going to identify these clients.
  • How you are going to help them understand the risks, advantages and disadvantages of different solutions.
  • How you are going to manage their expectations.
  • The platform, product or investment service and how that meets their spending needs in practice.
  • How often you are going to review the client, what they should expect, and what the overall plan is.”

In its conclusion, M&G Wealth and NextWealth’s report says the primary reason for companies introducing a centralised retirement proposition is the direct benefit to the client of a consistent and robust process.

As Andrew Megson, executive chairman of advice firm My Pension Expert, puts it: “If you have a client in Northumberland and a client in Torquay with the same circumstances, being dealt with by two different advisers in the same firm, the outcome should be the same.”

Chloe Cheung is a features writer at FTAdviser