The lack of advice tools to help create suitable options for clients in the de-cummulation phase is threatening to create problems and could "permanently destroy wealth", a consultancy has warned.
Moody's Analytics head of retail product and advisory Philip Mowbray (pictured) said that the advice industry was lacking the right tools for determining risk at the tail end stages of the investment process, such as in drawdown, and often "fudged" the process.
This is a particular problem he said, as the risk for consumer detriment was higher at the final stages of an investment process than in the early stages, when advisers still had the opportunity to "fix things".
The regulator has recently voiced concerns about risk-mapping practices at accummulation stages that allow advisers to match client ratings and product ratings expressed in numbers without considering their real suitability.
Mowbray said: "It remains fairly clear to me that a significant proportion of financial advisers still just do a [technical risk rating], get a risk rate and pick the fund and I think there are some platforms and some risk rating solutions that re-inforce that, which is unlikely to lead to good outcomes for customers.
"However, in accumulation if you get it wrong there is the opportunity to fix things. If you're near the point of retirement, the decisions you make and the potential for those decisions to permanently destroy wealth is just much greater than it is in the earlier stages of accumulation."
Advisers giving advice on areas such as income drawdown, where the client's objectives are less to do with growing wealth and more with having a "certain level of money to sustain a lifestyle", needed to re-focus from a general risk-return mindset to one that looks at the client's income requirements and spending objectives, Mowbray suggested.
They need to focus on "how they are demonstrating that any recommendation they have made is going to be able to sustain those income requirements over the period of the customer's retirement", he said.
"That's the fundamental point missing at the moment. What we need is some kind of model or some sort of advice tool that illustrates explicitly and in simple terms the trade off between income, income security and the residual capital." he added.
Mowbray pointed out that there was a small number of "very specialist high quality retirement advisers" that used tools provided by life companies or that they developed in-house to determine the right products for their clients.
However, he said: "We are talking a very small niche part of the market. The rest of the market are, largely speaking, using their accumulation advice models and taking an attitude to risk score, [which comes out] as cautious or balanced. And in some way that is being fudged together into a retirement income plan, which is obviously going to have problems with it.
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