Innovation or evolution? What best supports advisers?
Alastair Black, head of Financial Planning Propositions, Adviser & Wealth Management Propositions at Standard Life, looks at the theme of innovation and discusses whether it might be a case of evolving products, platforms and toolkits to support advisers rather than a requirement for wholesale changes.
Pension freedoms took us all by surprise and a lack of innovation seems to come up as a regular theme. But let’s take a step back – what are clients really looking for?
Is it the ability to take what you want, when you want it simply and easily? Is it the ability to apply a consistent investment and withdrawal strategy across all your savings? Is it an investment solution that gives growth but provides a guaranteed income simply and cheaply? Or is it tools that allow advisers to help the client understand what might happen and to plan for the future?
The first two were arguably already done before pensions freedoms was announced. A good Drawdown product allows the client to take their money how they want when they want it and Platforms have always provided the ability to manage withdrawals and investment consistently across multiple tax wrappers.
An investment solution with guarantees and growth is a challenge. A worthwhile challenge. But a number of providers have recently pulled out of the market so it’s certainly not obvious this can be delivered cost effectively.
What do clients really want? Perhaps:
1. A clear plan that gives them confidence they can live the Retirement life they want to
2. Confidence they won’t run out of money
3. Cost effectively and at minimum fuss and effort
This is exactly the service an adviser provides. The real issue with pension freedoms is that retirement planning can be complex and people need help. The AKG customer research certainly calls out the need for confidence on not running out of money. So I can’t imagine anyone would argue that clients want the first two points above. The challenge is in delivering this with “minimum fuss and effort”. In the AKG adviser research they refer to an increase in use of tools like cashflow modellers but a worry about adding cost and time.
Innovation we need
So the innovation we need is to provide advisers with tools and services that make their job easier, freeing up capacity to help meet the ever growing advice gap, whilst increasing the confidence of clients to live their life in retirement without worry. The key is that the tools need to save time – not add to it.
Let’s look at one example that can make a real difference to clients in understanding how long money can last – giving them permission to spend with more confidence they won’t run out of money.
Cashflow modelling tools were a real Marmite moment for the industry. Some advisers loved them whilst others hated them. The key challenge from those that didn’t like them is the one already called out – they took too long to complete, then they became out-of-date the next day because inevitably either something changed or more information came to light during the client meeting.
However, market innovation to deliver simpler cashflow tools is effectively driving greater adoption. By viewing it as just a quote with some nice graphics to show the client when they may run out of money, advisers can have more engaging conversations and update the results in seconds to produce “what if?” scenarios to demonstrate how much risk the client is taking should markets fall. This can then lead to discussion about what the client might do, for example creating some simple rules they and the adviser would follow about how income might increase or reduce in the future.
Innovation doesn’t have to be grand gestures or big launches: it can just be taking existing good ideas and redesigning them to make them simpler and more practical.
By way of example, Standard Life has worked with Focus Solutions to take their full Cashflow tool and simplify it down to a level that an adviser can complete a tailored projection with varying income and what if scenarios in 5 minutes. Yes, the projected path will change as client circumstances evolve, but a tool can illustrate to the client how:
• income can vary to meet different needs over time (like taking higher income until State Pension starts), and,
• the impact of adverse investment market conditions and lead to a discussion on how they will manage that risk – e.g. by having a plan to reduce income to protect long-term sustainability (but knowing they can live with that reduction).
This not only helps advisers give better client outcomes but also reduces risk in their business by helping to ensure their clients understand the sustainability challenges faced by remaining invested through retirement, rather than the alternative of buying a guaranteed annuity income.
So in summary, since pension freedoms we may have seen little real innovation in products, features or investments – but do we need this?
There has been innovation in the tools available to advisers. This has helped them deliver improved tailoring of client outcomes, whilst simultaneously giving clients greater confidence through understanding their plan and reducing risk in the advisers’ business. The future is likely to see more of this as the market finds new ways to reconstitute the fixed building-blocks (product & investment) to drive an unprecedented level of individualisation in advice in a scalable, efficient way.
Previously published in the AKG Pensions Freedoms 2018 paper