Two thirds of advisers say that up to 50% of their business is now from clients in pension drawdown, according to a new survey.
The survey suggests drawdown has become a hugely important advice area for financial advisers.
The majority of advisers say drawdown represents 25% to 50% of their firms’ advisory business, according to the survey by actuarial consultants AKG.
AKG surveyed 200 advisers on the growth of Centralised Retirement Propositions (CRPs) in the advice market.
Adviser firms said rising inflation and increased market volatility was “driving evolution” in adviser firms' CRP processes and propositions.
A major challenge, according to many advice firms, is that advising clients in retirement and drawdown is “more risky and more expensive” than advising clients in accumulation, with risks increasing once clients begin to take income.
Despite the risks many advisers say pensions drawdown is now a mainstay business area. Most say drawdown is a minimum of 25% of their business while 17% said that clients in drawdown represented between 50% and 75% of business.
Nearly two out of three (64%) envisage increased client demand for drawdown in the next five years.
AKG’s Research Briefing, sponsored by Investec Wealth & Investment is called: ‘Coming back to the table on CRPs’.
The briefing is drawn from research with 200 advisers and in-depth interviews with 17 representatives from a range of adviser firm types.
The research found that:
CRP adoption - Around three-quarters (73%) of advisers surveyed said their firm had already launched a separate/distinct CRP. Meanwhile, one-fifth (19%) said their firm had not yet launched a CRP but were planning to do so in the next 12 months.
In-house vs. outsourced investment - Just over three-fifths (63%) of advisers said their firm’s CRP is outsourced to a discretionary wealth manager, with the remainder saying their firm has discretionary permissions and manages its CRP in-house.
CRP composition - More than half of advisers (55%) said their CRP includes an investment policy which reflects the risks associated with drawdown and 53% said their firm’s CRP included consideration of guaranteed income.
Addressing essential income requirements - Around a third (34%) of advisers said their firm’s CRP addresses clients’ essential income requirements by investing in lower volatility assets. Around 39% do so by purchasing an annuity or retaining DB pension benefits where available, while 27% say they achieve this via a combination of the two methods.
Matt Ward, communications director at AKG, said: “Whilst the adviser survey indicates widespread CRP adoption, there are potentially contrasting views from the adviser firm interviews with some suggesting that CRPs are only emerging, and that development has typically taken the form of structured/mandated processes rather than mandated products/propositions. Either way, the driver is the need for compliance, consistency, and efficiency.”
“A key concern for some firms is that a CRP might compromise independence if there is too close a tie to a specific product or provider. Perhaps (in CRP) it is more a case of ‘P’ for processes for adviser firms and ‘P’ for proposition in the minds of providers, platforms, DFMs and asset managers.”
Simon Taylor, head of strategic partnerships & platforms at Investec Wealth & Investment, said: “The research clearly illustrates that in current market conditions, none of us can act independently. The new approach of combining the certainty of a guaranteed annuity with the flexibility of drawdown needs to be explored.”
• The survey was facilitated on AKG’s behalf by independent research company Pureprofile during April and targeted 200 adviser respondents. In addition a series of 17 qualitative interviews with key representatives from intermediary firms was also carried out to support the delivery of this project. These interviews were facilitated on AKG’s behalf by market research specialist Frank Fletcher, of Widewater Consulting between mid- April and mid-May 2022.