Understanding centralised retirement propositions

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  • 39 mins 13 secs

Learning: Structured


  • John R Porteous, Charles Stanley
  • Mike Barrett, Langcat Financial

Learning outcomes:

  1. How a centralised retirement proposition can improve customer outcomes
  2. Understand the risks and consideration for advisers who run centralised propositions
  3. Satisfying income requirements and intergenerational wealth conflicts
Channel: DFM
London • Harpenden
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PRESENTER: Since pension freedoms and choice were introduced, in April 2015, many advisers understand the need to build their business model around a centralised retirement proposition. Which is seen as hard work, and it is. During your client’s retirement their requirements and likely to change, thus adding further complexity to the service you’re looking to provide for them, which is the topic of today’s Akademia session. To discuss this John Porteous, Group Head of Distribution, Charles Stanley, and Mike Barrett, Consulting Director, lang cap Financial. And there’ll be three key learning outcomes: the core issues facing customers and risks in retirement; how best to go about building a centralised retirement proposition; and if a centralised retirement proposition can exist, yet still be independent. But first we’ll start with a definition and if it means different things to different people.

OK John, so I want to start with a definition, what is centralised retirement proposition, what is one of those?

JOHN PORTEOUS: Well it’s a good question because I think it starts off by looking at the evolution of what centralised propositions are around. I think they came in at around RDR, where people wanted to create repeatable and consistent investment outcomes. And we really started as an industry to start to think about how do we this? And this came up as the investment industry and the platform industry started to come together and create an architecture around investment structures, and this is all around linking to defined customer outcomes. I think we’ve reached a point now with pension freedoms that there is sufficient difference between investment needs post-retirement from pre-retirement, or accumulation and de-accumulation, however you want to put it, and I think you need to look at the investment strategy differently.

So to your point around what does the definition look like, I think it’s still around having that central governance consistency oversight, but it’s looking for that strategy to be really specific to the retirement journey, as opposed to the accumulation of capital.

PRESENTER: Because Mike there seems to be a lot of confusion about CIPs and CRPs, people not really knowing what the difference is there. Is that causing problems and is there a really obvious difference?

MIKE BARRETT: Yes, I think there’s certainly, within the industry there’s a lot of abbreviations which never help the understanding of what’s happening here. As John said, the centralisation of an investment proposition started around RDR and some of the suitability work that was happening alongside RDR, where, in particular, advice firms who were delivering inconsistent outcomes. So the same customer seeing a different adviser in a different firm getting a different solution was highlighted as extremely poor practice that was likely to result in regulatory action. So firms wanted to have that consistent approach. And it’s, if implemented well, it gives a good outcome to the customer as well. So the firm can devote more time on researching and understanding the investment solution and then applying that to customers for whom that solution is suitable for.

Pension freedoms changed again where generally there was more focus on retirement planning and at retirement planning rather than buying an annuity. And the centralised retirement proposition has started to evolve fairly slowly off the back of that.

PRESENTER: So how would you say since its evolution if you like centralised retirement propositions have been received?

JOHN PORTEOUS: I think that they’re just starting to be received. Mike’s make the point, you know, they’re slowly starting to evolve. I think we’ve seen some pockets of really interesting good practice. I’ve seen some really interesting financial planning tools, and modelling tools are now entering the market that are specifically thinking about OK how does your risk profile and how does your sort of risk tolerance and capacity for loss evolve post-retirement. It’s kind of back to Mike’s point, might be similar questions that a planner may be asking the client, but they’re very different in their application post-retirement. So I think it’s an evolving market. I don’t think we’ve actually seen the end game as to what this looks like yet. But I think what you will end up seeing with centralised retirement propositions ultimately is a lot more flexibility and configuration in their application.

I think you will not find things as tightly managed and as model-based as they are in the accumulation phase. I think you’ll find more flexibility. Because once you get into that retirement journey everybody’s life is so different, so very different.

PRESENTER: So breaking this down to the basics if you like what would you say are the core issues facing customers or investors at the moment?

JOHN PORTEOUS: Post-retirement, in the retirement journey itself, well I think the question has changed. If we were sitting here asking ourselves this question 10 years ago, the entire debate would be around annuitisation, and whether annuities offered good value and therefore do I think about drawdown as an alternative and that’s a starting point. Now under pension freedom you can have complete control. I think the mantra is it’s your money, you’re entitled to it. But that brings on a completely different set of responsibilities. Because actually before the annuitisation option, and your pension income, gave you that baseline in retirement, this is what you can retire on. And the way that people reacted to that is that they would adjust their lifestyle to the income that their pension could deliver them.

Now you’ve got a pot of capital and people are responding to that in very different ways. For some people they’ll say do you know what for the first two or three years when I’m physically active and mobile I’m going to spend a lot of this. And there are no brakes. There’s nobody saying oh you can only have X per annum; it’s well you can have as much as you like. So I think the role of the adviser is not just around setting an investment strategy in conjunction with an investment manager; it’s around coaching the client to understand this money may have to last you 30-40 years. And then of course towards the end of your life you may be starting to think about later life care, when your expenditure starts to rise, and the last thing you want to do on the premise of basic living and dignity is you don’t want to run out of capital at that point.

So it does introduce a whole raft of different considerations. And then of course you’ve got the issue of later life vulnerability and what that means for your relationship with your money and potentially your relationship with your advisers.

PRESENTER: Mike, what are your thoughts?

MIKE BARRETT: Yes, I think there’s a couple of additional dangers I’d add on top of that and probably slightly broader than perhaps the specifics. I think, firstly, as John’s alluded to, there’s a lot going on here. There’s a lot of complexity and a lot of things that an individual needs to consider when you’re accumulating, when you’re saving for your pensions. It’s relatively straightforward. It’s about what you’ve got spare and what your employer can contribute, and finding an appropriate investment strategy, and sitting back and not doing anything off the back of it. Suddenly you hit the point of retirement and you’ve got to assess your investment strategy, how much you’ve got, your own longevity, which research shows people massively underestimate how long they’re going to live and how much they need to spend. You become much more risk aware, if not your own individual risk tolerance changes as well. And all of that really starts to highlight the real importance of actually getting advice around this. And it is possible to do non-advised drawdown and manage this stuff, and some of the providers who work in this space are able to evidence how their customers are actually doing this reasonably effectively. But it’s very dangerous and I think the value of advice is never greater at that point.

I think the second danger is, the sad reality of it is that as great as pension freedoms are and as empowering they are and as much as they’re improving the outcomes, for a lot of people the damage is done by the time you get to retirement. You’re not saving enough, you haven’t invested appropriately and you get to that point of assessing your at retirement pot and you are going to run out of money before you die, and that leaves people with some very hard decisions to make, and also leaves them vulnerable to some of the scams and the criminals who are promising unrealistic returns, where actually you end up losing everything as well. So that’s an area of the market which is sadly starting to develop and is something which the industry really does need to stamp out.

PRESENTER: So, John, pension freedoms has significantly changed the playing field. What would your advice to advisers be off the back of that?

JOHN PORTEOUS: I think pension freedom creates a need for advice that’s the greatest I’ve seen in my career in financial services. And I think Mike makes an incredibly powerful point about the value of advice. I think increasingly we’ve talked about the cost of advice, but we really need to focus on the value, what is the value? And the value is a series of components. There’s something around the coaching. So actually the discussion, the strategy setting and the disciplines, you know, the relationship that the adviser, the planner is going to have with the client, to make sure that that marries perfectly into an investment strategy, and then the fluidity of that review to make sure that it’s responding to changing needs. Because I think when your needs change in retirement, they’re going to change in very different ways. There may be gifts to the next generation, maybe inheritance tax planning, maybe changes in your lifestyle. There may be cognitive impairments, all these different things. And the role of the adviser, the trusted adviser within that process is just huge.

PRESENTER: And, Mike, the FCA has actually flagged that advisers, some advisers have changed their retirement propositions following pension freedoms. Does this sort of thing raise issues or what sort of things should advisers be aware of here?

MIKE BARRETT: Yes so it was a very brief mention in one of their sector view documents at the start of the year, kind of setting their agenda for work they’re looking at, where they flag that most advisers haven’t changed their investment propositions in light of pension freedoms. But my sense is they’re not necessarily seeing that as a bad thing. I think the poor practice is more that advisers are just carrying on doing what they’ve always done and haven’t had the sense check to actually make sure that they’re still making the best recommendations and most suitable recommendations. So I think that’s what they’re expecting advisers to do to actually assess what is going on here, rather than just carrying on what they used to do before pension freedoms arrived.

PRESENTER: So now let’s move on to other risks customers face in retirement when they’re changing from accumulation to decumulation of pension wealth. What would you say are those key risks they’re facing John?

JOHN PORTEOUS: Well I think from my experience having been an adviser for many years, I would say it’s to make sure that that transition is as seamless as it can possibly be. It shouldn’t just suddenly judder and then take a right turn. I think people should be thinking about what they’re planning to do with their money post-retirement many years in advance of their planned retirement date, if indeed they even have a retirement date. And we’re seeing so many examples nowadays of people who are defining retirement in completely different ways. So retirement much more frequently now is not a case of right I just stop working and then suddenly turn up at the golf course seven days a week. It’s a case of well maybe I’m going to phase into retirement. Maybe I’m going to change my occupation and work in a completely different way. Maybe I’m going to alter my work/life balance. And we do see massive examples of people working much, much, much later, partly because of some of the things that Mike and I have talked about already, because of longevity, but partly because they choose to. They wish to have that. And I think when you apply that as a starting point, you look at an investment strategy over it, you really need to take that into account.

So as a general rule of thumb I think you need to be opening up the conversation five to 10 years before people retire, to get them to start to think about it, and to educate themselves. Because again we come back to the point around pension freedoms, it’s such a huge decision. There are so many variables. We’ve talked about a number of them, but there are more. To expect somebody to understand that at a single point in time around a single financial decision, I think it’s too much for most clients; they should be if you like phased into that.

PRESENTER: But during this decumulation phase, what’s the risks that they face; are advisers aware of these risks or what should they be factoring in?

JOHN PORTEOUS: Well I think you’ve got to look very much around your overall financial affairs. You’ve obviously got your investment risk. You have also the risk around are the retirement aspirations of the client realistic? And again this comes back to the coaching and the value of advice. Because if you don’t have that baseline of an annuity, and here’s the income that it given to you, and the question is more around how much income do you want, is that withdrawal sustainable? Is it responsible and practical to actually deliver that? What pressure does that put the underlying capital under? And also what broader considerations do you have with your wealth? So do you want to spend it on lifestyle changes? Do you have for example your property to fall back on in later life? Do you have other savings? How are you bringing this into account?

So I take the point around risk, but I think the first thing you have to do is to bring all your wealth together holistically together to look at everything as part of the retirement puzzle. Then you have to look at the practicality of is the client giving you an answer to your questions that’s realistic? So are the needs actually doable? And good advisers are the ones that bring their clients on a journey to understand what is practical, responsible and achievable. Not just yeah, if you want 8% income we’ll deliver you 8% income and let’s keep our fingers crossed. That’s not the industry that we’re in.

PRESENTER: And, Mike, what would you say in terms of the risks they face?

MIKE BARRETT: Yes and I think it goes back to John’s point around the holistic nature of the advice that needs to be given, and it has to cover all of the individual client affairs. There’s a lot of research coming out now which is looking at actually the average age of inheritance. So Resolution Foundation did a paper last year which is showing that for people who are in their mid-30s now, they can expect to be inheriting when they’re about 60/61. So actually not only are you at the peak of your own wealth accumulation as an individual, and you’ve got all of the stuff we’ve talked about, but you’re inheriting so perhaps you’ve got parents who are dying, which is obviously a tremendously significant life event for people to understand. You might have their own long-term care needs for your parents, you’ll have your children going through university and all the rest of that stuff. So it’s not only the holistic nature, it’s the intergenerational nature of that as well which needs to be considered. There’s an awful lot happening in your financial life at potentially the worst possible time as well for people to get their heads around.

JOHN PORTEOUS: Can I just add something to that please? Because I do think Mike makes a really good point, because there’s a natural tension between managing the income and lifestyle of people post-retirement or in later life, however you want to define it, and the expectations of the next generation. Many of whom may actually be relying on an inheritance to fund their own lifestyle at or around retirement themselves. If you like the DB generation moving to the DC generation. And again it’s down to the value of advice to coach your way through that to ensure that that doesn’t become if you like a financial conflict of interest.

PRESENTER: And how about external factors, things like inflation, what does that add to the mix, how much should advisers be concerned about that?

JOHN PORTEOUS: Well I think inflation is the silent killer isn’t it? I mean it really is something that is of paramount consideration to people at later life. If you think about someone with a relatively modest to low risk profile, the capital market assumptions of future returns that you could get from a blended equity and bonds and property, cash etc., going forward looks more modest than it might have been in the past. So the actual nominal returns are less. You’re then deducting that for inflation, what you’ve got left after all charges are taken away is less than it would have been before. So I think advisers need to look at OK what are the real net-net returns I need to solve against inflation. But also with inflation you need to think about what is actually the rate of inflation that my client is actually experiencing. Because I think for many you can see that the rate of inflation that people have for the basket of goods and services that they consume at retirement or post-retirement is different to the bog standard CPI figures, and in many cases higher.

MIKE BARRETT: And I think you have to add investment risk into the mix around this as well. So one of the things which most people have enjoyed over the last three or four years since pension freedoms has been relatively stable markets, there’s been the odd big bump hit here or there, but year to year if you’ve invested reasonably intelligently your portfolio has gone up in the right direction. And it goes back to the point around behavioural side and coaching and not making stupid mistakes at the worst possible time. If the markets have a significant decline over a significant period, how will people react in the early years of retirement? It’s possible to do some very significant damage by switching into cash or going away from an investment strategy. And that’s again where the adviser can add value to shield the client and to make sure they stick with the plan. And sadly I think that’s something we’ll see play out at some point in time. It’s a bit of a scare story about what if, what happens when the markets crash. But we haven’t had that yet since pension freedoms.

PRESENTER: So withdrawal obviously comes with a number of risks, so how do you calculate a secure rate of withdrawal?

JOHN PORTEOUS: I think that’s one of the really hot topics at the moment: what constitutes a safe rate of withdrawal? There’s been a large body of work done around if you like the legitimacy of the 4% rule, which I think when I was in financial planning as a practitioner the 4% rule was kind of one of these rules of thumb that was very influential. And I think increasingly that’s been called into question as to whether or not that’s achievable going forward. I think it’s a fluid debate. It’s linked to what we can realistically expect, one, from future investment returns; two, from the nature of the portfolios that we put together; and, three, from the mechanics, how do we actually withdraw the money, how tactically are we thinking about how we withdraw the money from that portfolio? So I would actually say that in my opinion the safe rate of withdrawal would be fluid, and building a portfolio that’s entirely predicated upon taking your income at a set level for the next 20 years. I would favour an approach where you look at your overall assets and you’re able to draw upon different parts of the portfolio, potentially even a cash pot, to support your portfolio in times of difficult markets to smooth out those trends.

PRESENTER: You’re nodding, you clearly agree.

MIKE BARRETT: Yes absolutely, I think with anything individual client suitability is the most important factor, and there’s always that tension between a retirement proposition, the consistency of outcomes versus the individual client. This is the best example I’ve had I think where you’re in a dangerous place I think if you’re saying that’s a rule of thumb, x% works for every single one of my clients. The reality is you need to go through that planning exercise, and it’s why we’re seeing the rise and the real popularity of cashflow tools such as Cash Calc, Timeline, Voyant, etc., where advisers are using that, getting that client’s holistic picture into the system, and working out for the individual what the answer to that question is.

JOHN PORTEOUS: Just to add to Mike’s point, we were talking earlier about that tension between gifting to the next generation and maintaining your own retirement provision. This is a classic example of that. Because if you like your attitude to risk, your ability to take onboard and weather investment risks for a prolonged period of time changes. Because as you go into retirement you may have a holistic wealth that is a certain point, but once you start gifting to put grandchildren on the housing ladder, or put them through university, your ability to handle those financial shocks change, because actually your fall-back funds are being gifted away, because it may be part of an inheritance tax planning strategy as well. And therefore going back to the fluidity of the point and the ongoing advice, how you then look at investment risks and withdrawal rates, and how much is safe and how much is not safe, has to respond to that.

PRESENTER: So then how does a centralised retirement proposition fit in here, how does it help, why is it important do you think?

JOHN PORTEOUS: I think what we’ve done is over the last 20-25 minutes we’ve talked about a lot of things that are fundamentally different post-retirement than pre-retirement. And going back to I think my original point around defining centralised retirement propositions, it is all about being responsive to that changing environment and not having a straight line assumption through everything. So if I were to really sum it up from that point of view I think centralised retirement propositions are tailored to the fact that the needs are changing, the changes are flexible, and the needs have to go hand in glove with that long-term coaching relationship and oversight that’s delivered from the financial planner.

PRESENTER: And what sort of response have you had from the regulator when it comes to centralised retirement propositions, and how does it impact your regulatory status?

MIKE BARRETT: I think it goes back to this point about individual client suitability, where whatever you’re doing, that tends to be at the very top of the things the regulator looks at. They want to see consistency of advice. So, if the client goes to see two different advisers in the same firm, do they actually get the same solution, or are the advisers picking their own things? If it’s the latter that’s pretty poor practice. So that’s the value of having a centralised investment proposition or centralised retirement proposition coming through. I think generally the regulator, like most of the industry, is playing catch up on pension freedoms. They had as much notice as everybody else did that this is coming through. So they’re starting to flex their muscles a little bit more on the regulatory side just to see how advisers react into some of the newer solutions which are coming through as well.

PRESENTER: I suppose the concern is that people think about is how can you be independent, you know, how can you review all the options, yet still have a centralised retirement proposition, is there a conflict there or not at all?

JOHN PORTEOUS: Personally I don’t think so. None more so than advisers are already dealing with. I mean the centralised retirement proposition for a starting point should have good governance around it. It should be in a position where that governance should keep the underlying proposition under continual review in any event. And I think that also underlying propositions can evolve with the tools that are coming into the financial planning space. You know, there’s never a year that goes by where you don’t see wrap platforms continue to expand their functionality, where you don’t see innovative investment solutions, and also where you don’t see governance generally improving. You know, the regulator is prodding that along. It’s pointing towards what good practice looks like, outsourced or in-housed. And generally speaking I think we can show a year-on-year trend of improvement in how these are run, but there is still positive steps to take, and there’s still improvements that we can make as an industry.

MIKE BARRETT: It comes down to the range of products and services that the adviser or whoever is doing the research to construct the proposition are reviewing. To be independent you have to do a whole of market approach and assess all of the solutions, but you’re certainly able to funnel that down into a range that are appropriate for your target client. And the rules around the prod handbook in particular require advisers to go through that process whether or not they’re going to be constructing a retirement proposition off the back of that, and matching the needs of their target client to the solutions which they think best meets those needs. So it’s a process advisers naturally go through anyway.

PRESENTER: Because obviously the client base is homogenous, so it’s not really a one size fits all proposition.

JOHN PORTEOUS: I think that’s really important. Certain client bases with very boutique-type firms can have really consistent needs and requirements. But generally speaking I don’t think a one size fits all, at the exclusion of every other option, can scale.

MIKE BARRETT: Yes, quite often the most important part of those propositions are how you deal with the outliers, so the clients for whom this service isn’t actually suitable, and you’re not squeezing them into it, shoehorning them into it, but you’ve got the ability to, I don’t know, use an off-platform solution, a low cost solution, whatever that might be. Those outliers, that 1% or 2% of your client bank are probably the most important part, rather than the majority of the client needs.

PRESENTER: So how many CRPs can you have, is it just one, or can you have a number of them?

MIKE BARRETT: You end up normally having one, but you will be setting the needs of your typical client. So you might have different solutions to meet the majority of needs and as I said a process to deal with outliers, whether that’s turning the client away or putting them into a different solution. But it’s that process of going through and understanding the needs of your typical clients, and also the services that an adviser wants to offer as well. So nobody is saying what type of business and what type of service proposition an adviser needs to give to the clients, that’s within their own discretion as business owners, but they’ve got to make sure that they’re meeting the needs of the clients who come through the door.

JOHN PORTEOUS: What I’m seeing in the space is not just a single investment proposition, but the CRP if you like is the process that you’re going through with the adviser, the understanding, the coaching and the setting the strategy. But then you can have a series of different investment strategies underneath. You could have a fully bespoke portfolio management service that could be outsourced. You could have a model based service, which could be active or passive, run in different ways. But if you like the triage that you’re going through from the advice is to understand OK first of all what are you about, what is your unique journey going to look like? And then what solution or combination of solutions is going to be right and suitable and the best fit for you? And so I think that increasingly becomes the retirement proposition. I think we fixate on the investment strategy. The investment strategy actually is the outcome of the proposition which is driven by OK what is the right one for your needs?

PRESENTER: So then let’s look at the key components of a CRP, what would you say they are?

JOHN PORTEOUS: Well I think going back to the point I was saying earlier, first of all it starts with the advice process, which can, first of all a large part of that is educational, all the things that we’ve talked about before. Then I think it’s linking that with underlying investment strategies and a review process, which one is right for you, and then making sure that the technology supports that and communicates with the client in the right possible way. So for me centralised retirement propositions are first of all understanding that the retirement journey is different and unique; secondly it’s around getting an investment strategy or strategies that support that within the suitability; thirdly making sure that the technology underlies that, delivers it in a way that is completely consistent with the needs, but also the desires of your clients.

PRESENTER: Well there’s certainly a lot of elements clearly that goes into a CRP and designing it must be quite hard and how should advisers go about that Mike?

MIKE BARRETT: I think they should with an independent consulting firm to understand what’s going on. I think there’s a lot of debate around this, and there’s no right or wrong necessarily to this and no magic solution for it. The most important part is to think about the clients, the typical clients that you’re servicing and what their needs are, and then assess the solutions which best meet those needs. And there’s a lot of ways you can do that, there’s a lot of tools and services you can help to do that. I think as well, going back to John’s point around the different elements that it contains, increasingly a really important element for adviser firms to get hold of is the management information and being able to actually monitor that.

So if you’re not going to be going in and looking at every single individual client file day by day, because you’ve got this centralisation going on, it’s really important to look at those common investment solutions which people are adopting, and have the ability to alert and to do something if those portfolios are not actually performing and delivering the outcomes that need to be required. That’s a really important factor to fit in for advisers.

PRESENTER: And how often do you think CRPs should be monitored, I mean how often should they reviewed do you think John?

JOHN PORTEOUS: Great question. I mean if governance is working properly it should be reviewed all the time. So to Mike’s point, investment outcomes, risk tolerances and parameters within the investment strategy, due diligence on the underlying investment managers, again be that outsourced or in-housed, should be a continual process. But ultimately the MI should flow into the management team, and I would suggest that at a bare minimum you should be looking at the suitability of your approach, but based upon the evidence, so the management information that informs the evidence, at least once a year.

MIKE BARRETT: I think you’ve also got to add, and this is something we’ve seen in the platform space, which we do a lot of work in, it’s having that ongoing monitoring which John talked about, but also the ability to flag and to pick up something which actually might be quite significant. So we saw it in the platform space where the ownership changes or the platform is going through a technology migration, where actually those are quite significant events which could impact your clients and your business, and just doing an assessment around what that means for the adviser. They’re not necessarily expecting you to radically change what you’re doing, but to not pick that up and to not have made that assessment is highlighted as poor practice.

PRESENTER: So, in terms of annual reviews, how should they be approached with this in mind?

JOHN PORTEOUS: Well I think importantly if anything is changing, or anything is flagging concern to the point that Mike was making earlier, that also needs to be discussed with the client. Clients need to understand anything that’s evolving, because of course in their eyes the adviser will be charging for that kind of oversight. And so therefore this again is a partnership that they’re doing this together. It’s not a bad thing if an investment portfolio is going through a period of underperformance, or even exceptional outperformance, which also potentially carries similar risks if it’s out with the bounds of expectation. And it’s to make sure the client is saying OK how do I feel about this, is this something that means that I need to move, or is this something where, again going back to what we talked about earlier, this is just a time where I need to work through this, because investment portfolios underperform and outperform all the time. But there does need to be that openness and transparency that flows from the governance process.

MIKE BARRETT: And the firms we see do it really well, they have that consistency with the initial advice process. So perhaps going through the tools and the reporting which the client will have seen a year ago at the point of investing, at the point of sale, and right this is the plan we had, how has it been performing against, have we delivered the outcomes which we were expecting? Yes/no, what do we do about that as well? That consistency of advice and service delivery to the client is really important.

PRESENTER: Well, John, earlier you mentioned governance, so how do you make sure you’re doing the right thing?

JOHN PORTEOUS: I think the first thing is making sure that you have all the facts to make good quality decisions. In my experience most advisers always want to do the right thing. And in order to do that you need to understand exactly what’s going on. You need to understand what’s going on at a portfolio level with the manager, with the investment strategy, and also with your technology providers and the tools that you provide. And I think to make sure that you have if you like that dashboard of information to hand is incredibly important. And also anybody running any centralised proposition should always have a plan B. You should never assume that what you’ve got on the table providing to your customer is perfect and nothing will go wrong. Things do go wrong from time to time, quite frequently on events that are out with our control. I think any governance process, and to make sure that you can do the right thing, you should be very clear in your mind as a firm, or as a practitioner, what would we do in the event of?

PRESENTER: So then what would your advice me on best managing client vulnerability?

JOHN PORTEOUS: Client vulnerability itself, wow. I think client vulnerability is going to be one of the big themes for the next five to 10 years. The reason is pension freedoms is somewhat in its infancy. It’s been dominating the headlines and it’s been dominating debates like the ones that we’re having today, but still it’s what, four years, five years. Ultimately we’re going to see more and more clients who have complete control of their assets in the form of pension freedom, so the full portfolio and the holistic nature that we’ve talked about before, move through different stages of vulnerability. That could be their special health, the more general cognitive decline over time, or it could be emotional aspects, bereavement, loss. And I think again this is going to be really important for the relationship with the adviser. Because I think as clients move into an environment of vulnerability, potentially the broader definitions as put forward by the regulator, you need to think about how am I communicating, how am I picking up those signs of vulnerability. Once I’ve picked them up, how do I plan to reengage that customer? And actually has the way that I’ve set up my proposition, can it cope with vulnerability? These are some incredibly important questions. And I think you may see more and more enhancements to the way that centralised retirement propositions are built and implemented over time to cope with these needs as they evolve.

MIKE BARRETT: And I think this is a great example of where advisers can add value to the client, rather than just focusing on the cost of the advice, by addressing some of these needs, and planning for the worst, and actually having these plans in place. What if this happens to you in later life? It’s a hard conversation to address with clients, it’s addressing your own mortality in a lot of cases, but my god it can add a lot of value to the individual clients. And we see a lot of client testimonials for advice firms who do that well, and ironically in most instances they’re the firms who are charging a lot to the end client, but the value that client is receiving clients cite as being priceless as a result.

PRESENTER: So I suppose all we’ve discussed, it really raises questions about intergenerational wealth transfer, inheritance, when to look at equity release, all these sort of things. Huge question, what do advisers need to be aware of here?

JOHN PORTEOUS: Well I think they need to be aware of everything that you said. I think that’s the point. It’s not a once and done kind of strategy, and the retirement journey for everybody will evolve. And as I said it’s not going to be a straight line, it’s going to be up and down. So I think it’s to begin with the end in mind. It’s to start that journey to understand okay, what’s our broad strategy? I think Mike made the point around a plan. I think many people who’ll be watching would say a financial plan, we build everything around a financial plan, and I would profoundly endorse that. Because ultimately that will take everything into account, and it will use cashflow modelling, and it will project further forward and start to answer the what-ifs. And that can be refined. It doesn’t have to be cast in stone. Most financial plans should be organic living documents that are reviewed over time. But ultimately as you say the equity release, the inheritance tax planning, intergenerational wealth transfer, the timing thereof, is all part, an integral part of the retirement journey. And actually to my mind I can’t see how you can advise in that space without taking it into account.

PRESENTER: Well we are almost out of time, so I’m going to take your final thoughts now, what you want the viewers to take away from this session. Why don’t you go first Mike?

MIKE BARRETT: I think the main thing is we’ve talked a lot about the complexities and the different areas that need to be assessed if you are giving advice in the retirement space. I think it’s just taking some time to assess your target clients and to make sure you’re delivering the best solutions that meet those needs. If advisers do that, and they can challenge it amongst themselves within with business to make sure they really are doing what they want to be doing, the right thing by the end client, that feels to me a really positive step.


JOHN PORTEOUS: Yes I would say I think just be flexible. Be flexible in your approach to retirement, centralised retirement propositions, and recognise that the journey for the client needs flexibility for all the reasons that we’ve talked about.

PRESENTER: John, Mike, thank you.

BOTH: Thank you.

PRESENTER: In order to consider the viewing of this video as your structured learning, you must complete the reflective statement to demonstrate what you’ve learned and its relevance to you. By the end of this session you’ll be able to understand and describe the core issues facing customers and risks in retirement; how best to go about building a centralised retirement proposition; and if a centralised retirement proposition can exist yet still be independent. Please complete the reflective statement to validate your CPD.

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