There was a full house during the retirement planning section of the recent Professional Adviser summit. Helen Morrissey gives a run down of the subjects up for discussion
Renewed focus on customer service is key to advisers building a healthy, sustainable business in the future says Brett Davidson managing director at FP Advance.
In the summit's opening presentation Davidson urged the audience to move away from commission only work and start charging fees as a means to building a renewable income stream.
"At the moment many customers think they have a bit of a chat with the adviser who then fills out forms and seems to get paid a lot of money for doing so," he said. "We know there's a lot of advice given in these chats but because we don't charge for it the client doesn't see it as good value."
Davidson added that while he wasn't sure if the FSA would ban commission he thought that over time life companies would start to pay less. Generating income from the sale of products puts advisers on a treadmill with no predictable income and no means by which to plan for their own future. By working out which clients advisers really want to work with and focusing on giving them the best possible service Davidson believes advisers can break out of this vicious circle.
"When you give advice to people you can charge up front for the chats, in the middle when you put things in action and then at the end for offering access to ongoing service and advice," he said. "You don't have to starve, you just have to focus on client service as a lever to growth."
Winds of change
Navigating the tricky world of SIPP regulation was one topic outlined by Hornbuckle Mitchell's managing director Neil Marsh. While he believed that the extra protection offered to customers under the new regime is good news he also believes that regulation will bring many changes.
"The SIPP market is very fragmented with a lot of companies operating a small number of schemes," he said. "In our opinion we reckon you need to run 1500 schemes to run a profitable SIPP business in the future."
Marsh also highlighted a key area of confusion for advisers; "Under the new rules there is no list of allowable investments.," he said. "Holding residential property directly will cause a problem but if you hold it as part of a genuinely diverse investment vehicle then it won't. Understanding these nuances is key."
Close attendance to detail is also needed in the use of in-specie contributions. "The key is to ensure you do things in the right order," he warned.
Marsh also commented on the future role of SSAS. While not regulated he said there is still a market for SSAS and Hornbuckle Mitchell will continue to take on SSAS business.
"Many insurance companies have pulled out of the SSAS market but these schemes still need advice and in some circumstances a new SSAS is the right choice," he said.
There was a change in content with the third presentation of the morning as Martin Brookes director of insurance portfolio management discussed asset allocation. Using the success of Prudential's with-profits funds as an example Brookes highlighted asset allocation as the most important decision to be made.
"I believe that a punchy absolute return approach to managing multi asset funds is the right way to do it," he said. "What I mean by absolute return is the asset allocation is driven not by a preoccupation with competitor funds or an attempt to establish up front what you think the right asset mix will be over time. You let it be substantially driven by the value you see in the markets."
The importance of getting this right led Prudential to establish the Portfolio Management Group (PMG) to do the asset allocation as a separate function from the underlying fund managers.
"When we set up the PMG it was important that it wasn't encumbered by a big bureaucratic process attached to asset allocation as decisions need to be made quickly," he said. "It was important not to exist in an ivory tower though. Decision makers regularly have contact with colleagues based worldwide and this information informs our decision. Our approach is not about trying to work out what the market is doing next week or even next month, it's about in general identifying when you will be well paid for holding something and when you won't. If you are generally getting that decision right then it makes a real difference to returns."
Future of stakeholder
Angela McDonald's assertion that stakeholder would wither away with the introduction of personal accounts prompted a great deal of reaction from the audience.
While stakeholder had succeeded in driving down prices and improving client communication, McDonald, director of market resources at Norwich Union said it had failed in sparking any great enthusiasm for pension savings.
"Stakeholder still requires advice and support and the majority of people cannot afford targeted advice," she said. "People don't want to save any more. Debt is at record levels so trying to move pensions into that environment in anything other than a compulsory way - stakeholder was not going to achieve that."
Personal accounts, she asserted, could be the way forward in solving the pensions crisis if it can make its way through the government agenda in the next few years and providers such as Norwich Union will be working closely with the DWP in the run up to the introduction of personal accounts in 2012.
"If we want to really drive pension planning then we need to create as simple an environment as possible," she said. "To do this we need to find an easy way to exit stakeholder and I think it will just wither on the vine."
Reducing inheritance tax
Inheritance tax planning was the focus of the presentation from Guy Myles, director at Octopus Investments.
"Over the last 18 months we've produced a lot of solutions for inheritance tax planning, so many it might confuse people," he said. "These products appeal to people at different ages."
According to Myles, investment in AIM stocks, a popular way of mitigating IHT, are principally for people at the younger end of the scale.
"You can make a lot of money from AIM shares but it isn't what many clients want," he said. "Many only do it because they want easy access to their money and exemption from inheritance tax."
Myles then went on to highlight several Octopus products aimed at meeting client's inheritance tax planning needs at different stages of their life. One of the products, the Octopus IHT Income Fund, enables people to generate an income in addition to reducing inheritance tax liability. Myles said he was confident the fund could deliver at least 3% annually with management fees only coming into force should the income generated rise above 3%.
There are many opportunities available to those advisers willing to get involved in the equity release market, said Elizabeth Wilkinson, head of partnerships at Key Retirement Solutions.
"You have to market to customers if you want to capture equity release business," she said. "You have to tell people that you do equity release business. As a rule people are interested in it but don't know where to get advice but once they've found where to go I find it's a conversation that people want to have."
Wilkinson highlighted the many uses people have for equity release with home improvements, holidays and paying off debts being the most popular reasons.
"In the first few years people look to fund holidays and this is where equity release can help," she said. "Another popular use is gifting money to family and this could take the form of house deposits, funding for university or even helping someone to set up their own business."
Wilkinson also pointed to other possible markets for equity release including pensions vesting and buy to let property portfolios.
"You should try to capture these opportunities now because if you don't then someone else will," she said. "Can you write the equity release yourself or do you need help? If you don't feel that you can write equity release with confidence then you can look to get a partner who can."
Open sesame - market
"Increasing consumer awareness of the open market option (OMO) is all important if advisers are to ensure their clients get the best annuity deal," said Partnership Assurance's head of sales Neil McCarthy. While doing this places extra pressure on the IFA it is vital in helping to eradicate the apathy that prevents consumers from getting the best retirement product for them.
"From a TCF perspective consumer awareness of the open market option is critical," he said. "Retirees today are in a much more complex situation than before. Twenty five years ago people took an annuity and that was it. A lot of people at 65 now are in very good health and they may want to defer their retirement and it is the adviser's responsibility to advise them on this."
Annuities have been linked with retirement since the 1920s with the market tripling in growth over the past ten years. This is despite the development of income drawdown and so called middle way products. While these are growing in popularity they are doing little to dent the £9bn annuity market. According to McCarthy issues such as brand loyalty, apathy and small funds are all key issues in dissuading people from taking advantage of the OMO.
What made financial headlines over the weekend?
Caring for children and elderly relatives
Similar to June 2007
Square Mile’s series of informal interviews
Fine reduced to £60,000