Each month we ask leading industry figures to answer one big question...
What impact will the Retail Distribution Review (RDR) have on the retirement advice market?
Claire Brooks is pensions technical manager at Suffolk Life
For those used to using bespoke SIPPs, the advice model may not be too different following the RDR. Customer-agreed remuneration and clear clean charging is not unusual in this space. The issues will arise for those used to using personal pensions with bundled charging and built-in commission.
SIPP providers, even if they are offering more basic products in the new world, are more likely to have all the systems in place to report and deal with RDR requirements.
As a knock-on effect, advisers recommending their products will be used to having the client see the full cost of the process of setting up and managing the SIPP or drawdown.
On the flip side, those that have been used to recommending personal pensions and annuities with built-in commission will have clients who, when they come up to retirement, will not necessarily be expecting a charge for the advice which may cause them to go it alone or worse, do nothing.
David Bell is managing director at Retirement Solutions
Our business already operates a fee-based structure, alongside a commission-based option on our advised operation.
Our non-advised annuity desk is purely commission-based. Some of the products, such as the Prudential's Income Choice Annuity and the fixed-term annuity from MetLife, are already RDR-ready.
Although post-RDR we will see a switch to more non-advised desks, we believe our current -business model will remain commercially viable as a specialist providing bespoke financial solutions for people approaching retirement or in retirement. We will remain true to our principles and will continue to be whole of market, while restricting our advice to ‘at retirement' in order to find our clients the best solution based on fund-size, lifestyle and attitude to risk.
As a specialist firm, we see more clients not only looking for the highest annuity rate, but also the best retirement planning solution. With more complex products entering the market - such as third-way options, fixed-term annuities and asset-backed annuities - coupled with clients looking to split their assets, the role of an adviser has never been more important.
While early estimates suggested that as many as 40% of advisers would leave the sector because of the proposals, I'm pleased to hear that it is now estimated to be nearer 10%.
Peter Carter is product marketing director at MetLife
The retirement solutions market needs innovation and increased flexibility, with a focus on ensuring people are encouraged to make a positive choice about their retirement income. That has to mean going beyond simply focusing on what type of annuity to buy.
The RDR will make explicit the costs of providing advice to clients when they take their retirement income. This is potentially an opportunity for advisers to demonstrate exactly how they add value for clients when making choices on retirement income.
That is not to downplay the challenge that will entail for advisers. It is essential for them to explain to clients their value proposition both on an ongoing basis and at the initial meeting.
Clearly, a number of business models are likely to emerge once the RDR is implemented, ranging from firms and individuals offering full initial and ongoing advice all the way through to low-cost annuity selection operations, which simply offer help in picking an annuity.
Advisers will have to make decisions on how to adapt to the new regime and that will mean carefully thinking through how their current business model needs to change in order to meet the new challenges.
Andy Curran is director of IFA, retail and partnerships at Aviva
Many advisers will be under increasing pressure as they work towards completing the necessary training and qualifications required by the RDR. This will take up a significant amount of time and resource, but many advisers are well on the route to completing their qualifications.
We are seeing an increasing number of advisers in the retirement space changing their working patterns by increasing their reliance on business-focused technologies.
In fact, our Aviva Adviser Barometer found that a third (33%) of advisers who advise on individual or personal pensions intend to increase their use of technology to support their business through RDR. Of these, 9% plan to significantly increase their usage.
By cutting out some of the administrative burden of paperwork, technology will enable advisers to streamline workloads and operate more efficiently.
Ultimately, this allows them more time to focus on the individual needs of clients in the retirement market during this period of change. Therefore, it is important that as providers, we support advisers and ensure they have the right systems in place with which to meet these needs.
Matthew Connell is principal of government and industry affairs - Global Life at Zurich
The area where the RDR will have the biggest effect is on people with just above average earnings, who need to save more than the minimum amount under auto-enrolment for a comfortable retirement.
The RDR will do away with factoring for regular premium products, making it even less commercially viable for advisers to promote small, regular premium pensions to their customers.
Fewer people saving a significant amount over their working lives will have a knock-on effect on the overall size of the retirement advice market.
More optimistically, for those who do have a large fund, adviser charging and higher qualifications offer the prospect of more transparency and expertise for customers.
People with large pension and investment funds are more likely to pay fees for advice because they have more to lose from making a poor decision. As a result, the RDR is likely to bring real benefits in terms of high customer confidence in this part of the market.
Stewart Dick is head of sales at Hornbuckle Mitchell
I believe the introduction of the RDR should prove very positive for the retirement advice market as it promotes a more transparent business model and ensures that advisers are operating in the manner in which they should be.
While the vast majority of advisers already operate in a professional manner, the RDR will undoubtedly improve consumer confidence in the industry and ultimately boost the reputation of financial advisers.
In my opinion, anything that seeks to improve levels within the industry can only be viewed as a positive, although the challenge is to ensure that clients understand the value of the advice they are receiving.
Post-RDR, the market will be primarily made up of independent financial advisers and restricted advisers, and merit can be found in both models. What I would caution when looking at the retirement advice market in particular is to consider all the options very closely.
It is vital that clients are given the widest possible basket of options before making a decision, which means that restricted advisers should have access to a panel of providers that can offer the full range of retirement solutions - capped and flexible drawdown, scheme pension, as well annuities in all their various forms.
Tim Gosden is head of product development -annuities at Legal & General
When it comes to pension decumulation, there is no question that the RDR will further polarise the provision of advice to the bigger pot end of the market.
This is not a good outcome, particularly now there is clear evidence from industry statistics that uptake of the open market option (OMO) is improving and more consumers are shopping around.
So at the smaller pot end, it is quite possible that a lack of available advice could actually stifle OMO uptake and those, potentially more vulnerable, small pot consumers that want to shop around will have do it themselves.
Perhaps a positive that can be drawn from the current market is many consumers are finding that shopping around to purchase their retirement income, whether on a non-advised or direct basis, is better for them than staying with their existing provider.
This is not just in terms of their annuity options, but also having access to enhanced rates. There is also no doubt that providers and advisory firms are repositioning themselves to deal with this issue. We will see a lot more non-advised and direct services offered by the traditional annuity sources and also newcomers like online aggregators.
Martyn Harrison is professional edge manager at AXA Wealth
The RDR is changing the basis of adviser remuneration. It is also causing advisers to consider what services to provide to clients in the future and the costs of delivering these services.
The inevitable focus on profitability will also influence the types of clients advisers target, with the consequence that it may not be possible to continue to provide services to some existing clients and new clients will need higher levels of income and/or wealth.
The retirement advice market is not immune to these pressures and we will no doubt see changes to the services provided and clear segmentation of clients.
It is likely that the RDR will lead to more specialisation and none more so than in the relatively complex area of retirement planning.
The question really remains with advisers being paid for their expertise and remuneration not being dependent on a product, will we see a more holistic approach to retirement solutions?
Iain Herbertson is managing director at City Trustees
I believe there is a mixed response to the potential impact the RDR will have on retirement planning. The discussions we are having with supporting IFAs reflect the fact that adviser numbers are likely to fall.
The unfortunate impact of this is there will be fewer advisers to provide clients with impartial retirement planning advice at a key stage of their life.
On the whole, the RDR does represent an enormous opportunity for well-placed, qualified advisory firms as a number of individuals and practices may literally ‘give up the ghost'. However, a drawback is that it may also drive out experienced high-quality advisers, leaving a younger, qualified but less experienced marketplace.
With the impact the RDR is having on product construction and IFA business remuneration models for initial and ongoing advice, I can see there being much less need for life company based products other than annuities, which will still have an important part to play.
For suitable clients with sophisticated needs and higher fund values, SIPPs will continue to be key, offering greater investment flexibility and retirement options such as flexible drawdown and scheme pension. Now more than ever is an exciting time for SIPP providers who are distributing products via IFAs.
Neil Jones is technical project manager at Canada Life
In truth, the impact on advice could be very different depending on what side of the fence one sits: consumer, professional adviser or provider.
Clients who have strong adviser relationships will understand adviser charging and so, the impact will be negligible and business as usual.
The separation of adviser and product charges will lead to greater competition and pressure on providers to reduce costs.
With similar charges, greater product innovation or higher levels of service will end up being the differentiator to winning business. This will ultimately benefit the client.
Many clients may only have accrued modest funds and therefore in the past, the level of commission available may not have been sufficient to pay for advice at retirement.
Adviser charging will allow clients to receive advice by allowing advisers to be remunerated properly for the service they provide. The question is, how many clients will be prepared to pay what may equate to a significant percentage of their annuity premium for this advice? Advisers will need to demonstrate added value and the benefit of financial advice.
Some commentators feel the RDR could disenfranchise all but the relatively wealthy from professional advice, particularly in the annuity market. But advisers and providers are likely to adapt over time to meet this need.
Simplified advice could be the answer, but progress in this direction remains slow.
Fiona Tait is business development manager at Scottish Life
The initial aim of the RDR was to provide higher standards and wider consumer access to financial advice. As things stand, there is a good chance it will achieve the former. Unfortunately, it is likely to have completely failed in the latter.
This has particular consequences for individuals with small retirement pots. For these people, face-to-face financial advice will simply not be an option. Their needs will have to be met using alternative methods of delivery.
I believe we will see the development of web-based questionnaires, designed to help people towards the best solution for them.
Individuals looking to plan their retirement will be able to self-serve using online tools which target the desired level of future income and calculate the savings required to achieve it.
Those who are looking to retire will be able to compare annuity rates online, and may be guided towards suitable income patterns and the relevant product solutions. These tools should also help people identify when they would benefit from face-to-face advice.
Clients with more specific needs - such as self-investments, maximising tax allowances and flexible retirement - will be better served by qualified advisers who offer a defined service and truly transparent costs.
Graeme Riddoch is sales & marketing director of The Open Market Annuity Service
The retirement advice market is changing, but not solely due to the RDR. There is product innovation, more sophisticated underwriting in the enhanced market, and huge pressure on providers to ensure retirees make informed decisions and receive fairer deals.
A wide range of distributors - advised, non-advised and a mix of the two - are putting in place technology that will underpin their retirement advice services post-RDR.
At one end of the scale we could soon see the first ‘household brand' annuity provider serving a mass market with a national proposition. At the other, technology will allow mid-market IFAs to offer a comprehensive, efficient service. Competition will increase, but the opportunity is there for all.
Carl Lamb is managing director at Almary Green Investments
It is clear that the RDR is shaking our world to its core and we will see a leaner industry in 2013. However, what has become apparent is that some clients will actually be worse off as a result.
This is particularly the case for clients with small retirement funds who may find that the cost of advice through a fee structure is just too high - particularly if a minimum fee is charged.
The result of this may be that clients simply won't review their pension planning - a no-win option for both client and adviser. Clients' choices will also be limited by the new rules, when those advisers categorised as tied rather than independent will only be able to offer restricted advice.
In practical terms, this means that clients will have a narrower selection of advisers able to give advice on areas such as full utilisation of the open market option facility.
Fully independent advisers, at the other end of the scale, will offer a wide-ranging, expert service to clients - but at a cost. The industry has yet to discover just how ready clients are to pay for good advice.
Andrew Megson is managing director of retirement at Partnership
I am extremely concerned that the implementation of the RDR may result in the unintended consequence that the poorest pensioners have a significantly reduced capacity to obtain financial advice on annuity options.
Research among Partnership's customers demonstrates that financial advisers are critical in the annuity purchase process.
We are concerned that qualification requirements may result in the loss of large numbers of experienced financial advisers who are able to guide consumers on their annuity options.
In addition, fee-based payments may lead to financial advisers stopping advising on unprofitable small pot annuity business and choosing more profitable areas instead.
In turn, this might create an advice gap which makes advice less accessible for the poorest with health conditions who arguably need it most.
Partnership supports the principles underpinning the RDR. But access to competent advice for people with small funds is preferable to no advice at all. We must not let a search for the perfect solution mean most people get a significantly worse outcomes.
I am delighted that Baroness Greengross recently organised a meeting in the House of Lords with major stakeholders who share our concerns. We must seek to put structures in place, which enable people to shop around for the best annuity rate as efficiently and effectively as possible before the implementation of the RDR.
Patrick Mill is sales and distribution director at Alliance Trust Savings
A key concern of the RDR is that it will significantly reduce the number of advisers in the UK.
The demise of the financial adviser community has been predicted many times in the past and fortunately has never materialised. Advisers have shown they can adapt, survive and prosper -whatever the market conditions.
The move to fee-based charging under the RDR may result in clients deciding they cannot afford advice. At the smaller pension end of the market, we could see individuals going down the direct route.
However, we believe any movement down this route will be driven by clients being unwilling to pay on a fee basis rather than advisers withdrawing their services.
The risk is that customers who then make this decision could do so at their detriment, especially when it comes to taking an income from their pension as many may be entitled to an enhanced -annuity or lose out on their tax-free cash entitlement by not having the benefit of advice.
Some individuals will need to ask themselves if they have the knowledge to manage their own pension and if they can afford not to pay for advice.
Steve Lowe is group director of external affairs and customer insight at Just Retirement
The retirement advice market is getting bigger and more complex, which creates huge opportunities for IFAs in the years ahead.
The danger is that the billions of pension money are attracting many other distributors, so advisers need to work hard to create a proposition that stands out in an increasingly competitive environment and can deliver tangible value to retirees.
The RDR has put a lot of focus on qualifications and new systems, but much of the work we have done with advisers has been around helping them work to really understand and be confident in their own business model, thus helping them to demonstrate the extra value they can bring to the table of their client.
The market is moving away from the idea of a standard annuity and towards plans that are individually underwritten.
That is healthy for advisers who can balance personal service and holistic financial planning with efficient processes, delivering whole of market advice that is profitable and affordable.
Vince Smith-Hughes is head of business development at Prudential
There is no doubt that the RDR will change the look and feel of the retirement market irrevocably, as well as the way in which advice is given.
Some advisers will become specialists in this market, receiving referrals from other advisers within or even outside of their practices.
It is also likely that simple, or even non-advised, processes will be further developed to cater for the mass of retirees who will be reaching retirement over the next few years. Advisers will need to determine to what level and to what extent they wish to offer an advice service.
Clearly, as is the case now, people with small pots present a challenge, although specialist advisers with streamlined processes will be able to deal effectively with these people and present them with the best possible solution.
Many providers have worked hard to ensure that their products are already RDR-friendly. In this sense, many changes have already been implemented and so the impact of the RDR will be lessened.
New retirement products that work for clients, providers and advisers alike will continue to gain traction, with the RDR being only one of the catalysts for change.
'The phrase now seems almost inescapable'
Many workers moved to career average accrual this year
Communicating the right messages in the right format
Drop is similar in non-advised arena as annuity sales slide
State pension optimism could be undermined by economic woes