StemCell Therapy

Over the past few years, advice for those approaching, and in, retirement has increasingly taken centre stage for many in the industry. The Product Intervention and Product Governance Sourcebook, issued in January 2018, alongside the recent Dear CEO letters to adviser firms, are examples of the FCAs increasing focus on this part of the market.

From a client perspective, significantly more people are entering drawdown, even those with smaller pots, and they are staying in drawdown for longer. Having a clear strategy for different client segments means you can help both your clients and your firm mitigate the risks that emerge as clients move through later life. It may also help you find ways of simplifying and bringing to life complex topics, such as income sustainability and longevity, in a way that clients can understand.

Three Dear CEO letters this year make FCA intentions clear

There are increasing demands on firms, including the need to ensure the cost to the client is appropriate, detail those costs on an annual basis, demonstrate they fully understand the products theyre recommending, and evidence that those products are in the best interests of their client. Making sure all of that is done on a consistent and efficient basis across a firm may lead some advisers towards establishing a centralised retirement proposition to sit alongside their centralised investment proposition. The ying of decumulation to the yang of accumulation.

Creating a CRP

There is no regulatory requirement to have a CRP, but it may build a framework that helps you manage the various interrelated risks of giving retirement advice, while helping you address the issues your clients face as they enter retirement.

As well as drawdown, a CRP needs to cover all assets a client may use in retirement, from pensions to ISAs, offshore and onshore investments, defined benefit and state income, and property.

A CIP is all about having a structured investment process that aims to deliver a robust solution that is both repeatable and consistent during the growth phase. However, a CRP is much wider than just investment, and should include all the risks clients face as they move through later life.

Retirement is no longer a cliff edge. Many more clients gradually ease from working into retirement, for example, by phasing tax-free cash withdrawals. So there needsto be consistency and a working link between your CIP and CRP to reflect this. A CRP needs to evolve from a CIP.

It is crucial that a CRP sets out a firms position around some of the complex issues facing clients in retirement, such as how you assess capacity for loss, when annuities play a part in your proposition and for which clients. It needs to consider inflation and longevity in a way clients can follow, and include a documented, robust sustainable withdrawal strategy.

Read our DFM Centre article: No CIP makes PROD compliance even more tricky

Other considerations

Investment clearly plays a part in all this. We know investment when taking an income is different from the growth phase, and different solutions may be needed. Sequence risk is a key factor when taking an income and there are a number of methods commonly used to manage this risk.

One option is holding funds in cash equivalent to, say, two years income. Pot investing is a similar concept where income is drawn from the lowest volatile fund with money rebalanced regularly. Taking natural income is favoured by some, while others may opt for volatility managed funds.

All these strategies have benefits and downsides. You may want to set out your reasons for using a particular strategy along with supporting evidence, as you may use different strategies for different client segments.

There are other areas to consider too. Vulnerable customers are of particular importance to the FCA and are one of the reasons it so vehemently advocates the need for regular reviews, and documentation of conversations and recommendations.

When is a client vulnerable?

Vulnerability comes in many different forms. It could relate to your clients health, certain life events (such as divorce), how resilient their finances are to unexpected losses, or even their level of financial knowledge. By assessing your clients against each of the FCAs drivers of vulnerability both at the outset and at their regular reviews you can ensure your advice is tailored accordingly. And having your vulnerability policy set out within a CRP means there can be consistency across your firm.

Some may see CRP as the latest fad in retirement planning, but it can help firms set out their strategy in a number of key areas, such as sustainability of income and longevity. These are areas many clients simply dont understand, and being able to articulate a clear strategy, with evidence to support it, may help clients understand why recommendations are being made, and the benefits these may bring.

Andrew Tully is technical director at Canada Life

Read more here:
A CRP is the yin to a CIP's yang - Money Marketing

This entry was posted on February 20, 2020 at 3:51 pm and is filed under Longevity. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed. |