Since pension freedoms reforms were introduced in 2015, much has been made about the role of professional financial advice in at-retirement planning.
Some have argued retirees cannot expect to afford advice at-retirement, while competing voices argued they cannot afford not to. The truth depends largely on perspective and individual circumstances.
But for the majority of savers we believe face-to-face advice has become more valuable than ever before.
It has been claimed in some corners that so-called ‘robo-advice’ will remedy the advice gap and help the UK public achieve retirement income security in the process.
This strikes me as a lazy assumption. While it is undoubtedly the case that digitisation of the financial advice process will have a marked impact on the industry, with some consumers choosing to go down the ‘robo’ planning route, there is little evidence it will serve as a magic wand to fix the savings quandary.
In the US, the most evolved computerised-advice market worldwide, just 3 per cent of retail investment transaction were conducted through a robo adviser last year.
And in the UK, recent experience shows us that very few retirees are navigating their own way to pension information resources, even when they are industry-funded and government-endorsed.
Research shows that the robo-advice industry of today is primarily composed of small pots of money from relatively young savers. And while many people are open to some form of robo-advice, few are willing to let a computer make all their financial choices.
This is not to say that digital does not have a role to play. But there is no credible evidence demand for robo-advice will supersede the incumbent face-to-face model anytime soon. And face-to-face financial planning still has a number of advantages working in its favour that will continue to ensure it remains relevant and valuable to those approaching retirement.
Put simply, much of the retirement income decision process is simply too complex to be conducted optimally without a face-to-face conversation. The numerous risks and variables, tax and legislative hurdles to be overcome mean that processing and enabling a decision based on all the relevant information is extremely difficult without the help of real-time face-to-face interaction.
Equally, the risks involved in retirement planning and the challenges of securing a sustainable retirement income strategy mean that many decisions are irreversible or can have damaging long-term consequences if they are not fully articulated and understood. The consequences of getting it wrong are so severe that it is difficult to see how the subsequent ramifications can be conveyed through a PC monitor with the necessary visceral force.
Non-advised annuity broking, execution-only drawdown and robo-advice all have their place in the retirement income market. They exist principally for those that are unwilling to pay for full advice, or believe their needs are simple enough to be handled without a comprehensive financial planning service. Those individuals should be aware, however, that some of the robo-based advice options are not whole of market where sometimes whole of market is needed. A panelled annuity option means that customers may not get the best value. So while the “advice” may be low cost, the customer outcome is not improved in this example.
