Remain Diligent About Who Controls Retirement Guidance

I don’t profess to understand much of the political intricacies of the UK retail advisory market place but I do have a well developed sense of opportunity. And I can feel a cat fight developing over retirement guidance, and the influence and opportunity it creates.

In play short term is, I understand, is the re direction of something like £12 billion pa of moneys that were originally destined for the welcoming arms of life company statutory funds. In the longer term there is anything up to £4 trillion in legacy products that will leach out to the platform world, or new alternatives, over the next 20 years.

Stage one of the battle is gaining or retaining growth on Platform versus life office new ‘visible and transparent’ retirement solutions. Stage two is to survive to be a beneficiary of the £4 billion tsunami.

The UK advisory community is to my understanding quite unique. Compared to other countries it has a stranglehold on both distribution and advice. But that might just be temporary. Over the next few years there’s little doubt at the least that the banks and life companies will be back, the robo advisers will arrive and Amazon, of the social media monsters will join the fray.

As Daniel Kahneman told us in ‘Thinking: Fast and Slow’ the critical issue in determining an individual’s response is not the question itself but how the question is framed. So who controls retirement guidance is an important battle. Don’t give it up lightly.

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8 thoughts on “Remain Diligent About Who Controls Retirement Guidance

  • This isn’t a ‘battle’. Framing the argument (to maintain the off-centre behavioural context) as a quasi-religious war between the forces of good (independent advisers) and the Evil Empire (Big Business providers and platforms) maintains a self-serving stereotype. Bloggers whose services are chiefly purchased by advisers have an interest in maintaining that division. The fact is most advisers depend absolutely on fund groups, platforms and secondary fund managers in order to fulfil their services. In this instance the question is whether those providers ‘need’ independent distribution and whether investors care about ‘independence’. Every tier of service adds costs to the investment, to the point where returns disappear versus risk- free alternatives. The simple fact is there are too many snouts in the retirement pot trough, and something will have to give. Since some advisers take the biggest cut versus fund and platform fees, simple economics suggest Distribution (advice/platform) is the weakest link. The front line investment manager may exhibit room for improvement, but at least he or she delivers the bulk of returns. Don’t confuse worthy financial planning with second- tier amateur yet expensive plasticine portfolio modelling…

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  • The biggest area of growth in funded pensions is the master trust, NOW, NEST ,Peoples, Smarter, Bluesky and Friendly Pensions are names we had never heard four years ago.

    Yet now they are the fiduciaries of over 1m people’s retirement savings.

    If the current run rate continues, it will be they and not the insurers who will be the primary beneficiaries of the remainder of auto-enrolment and the inevitable consolidation of occupational pensions (resulting from recent legislation) and from aggregation as pots increasingly follow members.

    The majority of these master trusts are not for profit, sponsored by the taxpayer(NOW and NEST), unions (BlueSky and Wellness), The Pensions Trust (Smarter).

    We underestimate the impact of this shift on the post retirement market. They have the capacity to offer post retirement services that could become the default for millions of Britains and they need to be factored into whatever plans Advisers are making to be active in this space

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  • @ Graham,

    Surely our aim is to serve the client rather than to sustain the historical model in which we all served the interests of providers ?

    I prospered under the commission led distribution system but we have been instructed to change our ways and learn to prosper whilst serving and being paid by our clients.

    You cannot possibly defend a system which has for the most part failed the public. Pensions remain an opaque mystery for most and with the average UK pension pot still under £40K you can safely say that product distribution under every guise had failed dismally.

    We need to accept that the job of getting people to save a little today to provide a little for tomorrow needs a dramatic change of approach from our industry.

    The solutions are available now but you typify the attempts by vested interests to retain control through product distribution.

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  • “amateur yet expensive plasticine portfolio modelling…” Now that’s fighting talk! I disagree with Graham in that IMHO many clients yearn for a personal relationship with a ‘trusted adviser’ and those who have that go through great lengths to retain it (or, “I’ve spent years training this adviser” as I heard recently). The alternative is DIY which is growing because respect for financial institutions (thank you “name and shame” and Fred Goodwin) has imploded but is also frightening because of ‘infobesity’. The real problem still seems to me that portfolio construction based on Modern Portfolio Theory group think was proved (again) in 2008 to be flawed but still seems compulsory according to many a compliance officer and has not been replaced except where a few brave advisers are prepared to take on the FOS if necessary. Plenty of unexploded mines therefore still lying in wait for both clients and advisers.

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  • Normally I’d leave well (or is it ill?) alone, but in this case I feel I should explain myself. I suspect Stanley is nearer to my position than he might believe. I too am tired of slavish adherence to Modern (irony) Portfolio Theory, in particular when it is dressed up as “Techniques previously available only to the wealthy” or some such nonsense. I helped an adviser reconstruct his investment process last year, part of which introduced a variety of asset allocation methods that were outcome based (De Finetti portfolios, Minimum Acceptable Return Cash/Risk Assets modelling etc rather than the one-dimensional risk based “guess the expected return” stuff associated with Distribution Technologies and their like. The adviser can allocate in a manner that best suits the outcome being sought, rather than via a Risk number. He also has a Suitability checklist (no, not a questionnaire) that assesses the client’s available Fee Budget, Authority, Need for Involvement in the process and need for Review. This then allows on or off platform (and which platform), passive v active, bespoke v ready-made, transactional v ongoing fee decisions to be made that really allow him and his team to practice real, unconstrained FINANCIAL PLANNING advice, and not just portfolio-building-by-numbers. He knows he needs operational and administrative support and professional fund management at component (ie fund) level, but the control is his and he therefore embraces those providers rather than ranting inanely about their evil influence.

    This adviser also agrees with Phil Melville, in that while there will be DIY Guidance opportunities abounding, financial planning is years away from being coded as an algorithm, even if investment management can be performed like that now (and it can). Relationship management is no less important than it ever was.

    Finally, Henry hits the nail on the head regarding not-for-profit pensions solutions for the ‘masses’ being the default solution for the majority. However, if the US experience of 410k accounts is anything to go by, once these ‘small pots’ grow to the equivalent of the saver’s annual salary, the saver starts to take a deeper interest – they now have ‘meaningful money’. At this point they will seek out alternative investment approaches – their money is Special and requires specialist attention. People will want to talk to people, as long as the cost of doing so isn’t at a ridiculous premium. Total Cost of Ownership will be hugely important in the face of unadvised alternatives.

    I repeat, there are too many noses in the trough, pushing poor quality investment solutions that bear unnecessarily high costs. Recognise that and build a menu of solutions to make your service REALLY different.

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  • @Graham,

    I think I am pleased that you agree with me although I can’t find where I used the words you refer to or indeed have a clue what it is I am to have meant by those words.

    Sadly I seem to live in a different world although perhaps happily for my limited vocabulary it is a much simpler world.

    I meant to say that as advisers we should be thinking about what people want, how much they value this ( are willing to pay ) and how we can deliver it to them in a way which they value and can understand.

    Your trade jargon is beyond me and I fear would be quite beyond my clients.

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  • Philip, in the short paragraph referring to your comment, the biggest word I used was ‘Relationship’. You implied the industry had failed customers, and my point was I agreed; the saving grace was the ability of financial planners to advise without being tied to products, and to understand client needs through reationship management.

    The second biggest word was “Investment”. Financial planning is a complex process, very difficult to do on a DIY or automated, on-line basis. Investment, frankly, is relatively easy by comparison. Investment ‘rules’, and fund selection criteria, can be coded, and automated. The set of rules you choose to use is an “algorithm’ – the third biggest word.

    No ‘trade jargon’ there. Finally, I’d counsel that while all clients value a down-to-earth, bedside manner, they value expertise and outcomes most. Like doctors, we need to know this stuff, even if we don’t blind clients with it.

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  • @Graham,

    As I have said before my gran was a wiz at financial planning despite never having been on a course in her life and living most of her life before George Kinder was Twinkle in his mothers eye.

    She used to add up all of her likely expenditure and make a note of when things were due. Then she used to put set amounts money into little jars on her mantelpiece each payday so that she could live her life according to Mr.Macawber.

    She also managed to have life insurance to ensure a ” proper burial ” and an endowment savings plan with the Co op to provide a little extra in her later life.

    Investment is not really much more difficult you just spread your money around various pots to avoid having all of your eggs in the same basket.

    Of course if you want to imply that you have a crystal ball then you will either need lots of words or some very visible evidence that you do indeed have both foresight and hindsight — ie lots of money of your own!

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