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Do you have (or need) a centralised retirement proposition?

03 June 2019

Advisers are divided on the issue of centralised retirement propositions. Zurich hears a range of views...

Looking at screen

Should advisory firms operate a centralised retirement proposition, separate and distinct from their investment approach for clients in accumulation?

It's a question we believed we’d get a spread of opinions on (we were right on that), but one we still felt was important to ask as drawdown sales continue to outpace those of annuities.

In the yes camp...

Alistair Creevy, Succession Wealth

Certified wealth planner Alistair Creevy initiated his centralised retirement proposition (CRP) when running Glasgow-based Independent Advisers Scotland (IAS) in 2014. It has been fully integrated into Succession Wealth, which bought IAS last year.

"I'm surprised that any adviser doesn't have a CRP," he says. "If advisers don't have one, then I'm afraid they should not be in the market for retirement advice."

His CRP is built on three distinct age groups: 45 and over, 55 and over and 65 and over.

"It's not too prescriptive as the different age groups can have similar requirements," he says. "The main aim is to highlight to clients that they are not alone - most clients have the same concerns.

"By having a CRP clients can see that we're familiar with retirement requirements, which makes them more comfortable in dealing with us. I don't understand any adviser who doesn't have a CRP; it's essential for a long-term relationship."

Kay Ingram, LEBC Group

We started our governed portfolios in 2010 as a way to help manage the risks of capped drawdown. It fully implemented its CRP after 2015 when pension freedoms opened up flexible access to pensions for all.

"This is essential to enable a consistent approach to be taken when advising clients in drawdown," said Kay Ingram, its director of public policy.

"While each person's circumstances will dictate the pace and pattern of income withdrawals, advisers need to be given the tools to navigate clients through retirement safely to avoid unexpected shortfalls in income.

"We use cash flow tools to help inform the process so that clients and advisers can work collaboratively in determining the optimum withdrawal pattern.

"Our centralised investment process combined with the personalised review brings efficiencies and discipline into management of drawdown, which helps keep clients' plans on track at a reasonable cost."

In the 'not yet' camp...

Samantha Secomb, Pentins

Kent-based Pentins is a small business with two advisers and 200 clients, around 15% of whom are in drawdown. It has a centralised investment proposition (CIP), but has not yet adopted a CRP.

"We are holistic planners and treat retirement the same as any other planning work really, but I have looked at a couple of investment propositions specific to supporting drawdown," says founder Samantha Secomb.

The adviser predominantly uses low-cost passive funds, which offer no downside protection in falling markets. "This is a concern if clients are regularly drawing on the capital value because deeply depressed prices mean lots of units have to be sold to provide the required drawdown," says Sam.

Up to now, the adviser has stuck with passive investments with an overweight cash position for those in drawdown to allow for taking a break of up to one year from withdrawals to protect against market downturns.

Diane Weitz, Ashlea Financial Planning

Gloucestershire's Ashlea Financial Planning has been managing drawdown pots for clients for more than a decade without a CRP, but it is an area currently under consideration.

"If you have discussed the income requirements with a client and have calculated a sum which is sustainable, there is no real need to change the investment strategy," says director Diane Weitz.

"I tend to set up portfolios where natural income forms a part as dividends grow each year and can provide a buffer in turbulent markets.

"Clients do not fit into a box for a centralised solution - it really is individual - but I do realise that if we are to create efficiencies in the business, some form of centralised proposition would be sensible for certain tranches of our client bank. It's an area we will explore as a firm over the next six months or so and then make a decision."

In the no camp...

Tom Munro, Tom Munro Financial Solutions

Tom Munro, director of his eponymous Falkirk-based firm, likens CRPs to CIPs, both of which are "similar to running through treacle".

"Considering there is no one size fits all approach, I prefer to keep things simple and cost effective," he says. "From a business perspective running a CRP requires additional, time-consuming in-house resources with all the associated costs of these, further exacerbated by MIFID II necessities," he says.

"These include continuous suitability report writing prior to each client's assessment of any investment proposal, all repeated for pre- and post-switching recommendations.

"Throw in recently increased research outlays and it all adds up to even higher ongoing expenses, as well as a marked extra administrative burden. For me, it's just not worth the hassle."

Tom believes clients in the decumulation phase most value a well-executed financial plan, fully supported by meticulous cash flow modelling, tax and succession planning.

Keith Herd, GS Group

Perth-based GS Group does not have a CRP and at this time has no intention of instigating one.

"Our belief is that our current processes and planning are robust enough to cater for the numerous issues a client faces both pre- and post-retirement," says financial consultant Keith Herd.

"Whilst it could be argued that an ad hoc system may not deliver a consistent approach for clients, our experience demonstrates that each client has to be treated individually. Clients' aspirations prior to retirement and their demands post retirement can be significantly different. We believe we can provide a bespoke and robust service to our clients."

The adviser usually conducts client reviews twice a year, at which the importance of risk and attitude to risk are discussed.

"We use a cash flow modelling tool to demonstrate to clients what their financial future may look like, and clearly this can be adapted to cater for changing circumstances," adds Keith.