The opportunity: take a look at the market for advice, identify a need that no one is meeting – or meeting well, in a way that will satisfy the regulator – and carve out a niche for yourself.
The proposition we are offering to our team has clear parameters. Every team member receives access to a financial health check, delivered by a quality advice firm using our technology.
This is not 360-degree advice, but it hits the key notes for the people in our business who are typically younger financial and tech professionals: protection levels, risk levels, pension contributions, mortgages, emergency cash and so on. Information is collected digitally and then discussed with an adviser on a video call.
Team members do not receive investment recommendations, but if they feel they need them at the end of the conversation they can opt to work with the adviser directly. The service is delivered at an affordable cost to us, and creates a revenue stream for the provider, as well as a gateway to new client relationships. We are paying a fixed annual fee per person.
Decumulation opportunities
Where else in the market might we identify opportunities for firms to provide their services in new ways? One area that looks ripe for innovation is decumulation – as highlighted by the FCA’s review of retirement income advice, launched in January.
The regulator notes the significant shift since pension freedoms in 2015 towards consumers remaining invested and drawing down from their portfolios, resulting in more complex advice requirements.
The question of fees for this group is a knotty one. If a client is drawing down, say, 4 per cent a year, and the adviser is taking 1 per cent a year that’s 25 per cent of their income, potentially on a declining pot.
Complicating the picture is the fact that higher interest rates have improved the case for annuities – but for firms there is a clear incentive to keep clients invested. The potential for conflicts of interest in this area may increase, depending on the path of interest rates.
For clients with simple, moderately sized portfolios, who are early in retirement and in set-and-forget mode, is there an opportunity to provide a lower-touch, lower-cost service? Or to rethink the charging model?
Of course, there are knotty problems to navigate with clients in decumulation: estate planning, bereavement, the cost of care. Cash flow planning can be hugely beneficial in helping clients to cover their current expenses while looking after the future.
