Is this our Kodak Moment?

[SPECIAL FEATURE: Paul Yates, Development Director, Selectapension]

Related topics:  Special Features
Amy Loddington
26th November 2014
Paul Yates

There’s little space for sentimentality in a technology led business as Kodak found out to its cost in 90s. The business was at the forefront of digital innovation but, as the market developed, failure to adapt their traditional business model led Kodak to lose valuable ground leaving the way open for its competitors to capitalise on the opportunity. And the rest is history.  In my mind, the at-retirement industry is now at a similar cross-roads.   The Government’s reforms could represent a major opportunity for adviser businesses to demonstrate their value as consultants particularly against the backdrop of free guidance for retirees.  But only if we are prepared to adapt our business to meet these needs. So do we hold onto the past? Or do we stride ahead and innovate for the future?

By effectively moving retirement from an event you insure against to a period you invest for, the Government’s planned pensions reforms represent a fundamental shake up both for the industry and consumers who are nearing or at retirement.  The true ramifications of this disturbance are unlikely to be known for some time. For example, will the planned changes sound the death knell for annuities?  Just after the Budget, the bottom fell out of the annuities market and it was also predicted that as much as £77bn will move out of the annuities market.   Yet more recently, Just Retirement results show their annuities business is doing well - for the moment at least. These conflicting reports are hard to reconcile and leave many unanswered questions for those planning their retirement.  It’s up to advisers to try to navigate a way through the retirement maze now and in future. 

I believe advisers need to demonstrate they are embracing change quickly in order to help manage their clients’ retirement income in future. This is particularly important considering that that from April 2015 they will need to complete with the offer of free guidance from the Government. So the onus naturally falls on them to demonstrate the added value paid-for advice over and above this basic guidance.  Encouragingly, this appears already to be happening in some quarters.  According to recent figures from the ABI more advisers are reviewing smaller pension pots for potential drawdown strategies – potentially rethinking segmentation exercises they have put in place following the Retail Distribution Review.   This echoes our own data analysis which found the average pot size analysed on our drawdown calculators has reduced by 8% in the past year. Hence the Budget has crystallised a trend for alternative investing and these strategies are being considered for a broader group of people in the at-retirement bracket.
 

What is clear, is that mass market customers will need further support and advice to help them understand the retirement options open to them and to execute what is one of the most important decisions in their lives. The free guidance offering is unlikely to go far enough and cannot provide support throughout the process to satisfy the needs of the market.

It will therefore fall on banks and advice firms to satisfy what will be a wave of demand for help, support and advice. Whether this is an advised process or not, the added complexity of ensuring transparency within a far more complicated process will prove a challenge – especially for customers with smaller retirement pots.

A market that has been disrupted, requiring more complex processes to continue advising or selling a mix of old and new world retirement products. This is a recipe for disaster for advice firms. That is unless they put in place strong retirement propositions, supported by rigorous processes, enabled by technology. Solutions will have to flex to allow advice firms to efficiently support the full range of clients, from those with simpler needs to those with highly complicated tax planning requirements. Innovation is required to ensure we can deliver a robust service, providing transparency, consistency and great customer value for a process that is now more complicated.

While the Retail Distribution Review recast financial advisers as consultants, pensions liberation provides a real opportunity to prove that the adviser industry can fulfil this new role.  Consumers approaching retirement need advice now precisely because the future is extremely uncertain. Already a leading actuary has predicted a spending boom as unadvised consumers withdraw lump sums from their pension pots rather than making more prudent suggestions. By all means, the industry should take time to develop a considered long term strategy for dealing with these changes but don’t lose sight of the fact those who need help today.  There’s a window of opportunity for us to exploit today and unlike Kodak we need to adapt now before it slams shut again.

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