Steve Lowe looks at the potential opportunities for advisers post RDR
The final countdown has begun for what promises to be a momentous event. Not the Olympics, but the implementation of the Retail Distribution Review which is now less than a year away.
Both athletes and advisers are working hard to ensure they have qualified and to prepare for the rigours of competition ahead. Advisers may have a few extra months, but also face the uncertainty of waiting for some of the rules to be finalised.
One of the fundamental changes from January 1st 2013 will be the move from commission to adviser charging although we do now know that business completed ahead of the deadline will not be affected. This is likely to be a daunting prospect for advisers who do not have a history of running a fee-based model.
There will also be the opportunity for advisers to continue serving less wealthy clients by developing execution-only services that operate alongside full advice. Both of these areas are likely to be highly competitive and those advisers most likely to thrive post-RDR are those who are focusing on growing markets and confident in the value for money they are giving clients.
The ageing of the ‘baby boom' generation is already creating markets that are too big to ignore. This year the number of people reaching age 65 is forecast to spike above 800,000 for the first time. Most obviously this is driving opportunities in the retirement income market which is set to be worth more than £20 billion within a few years. In the near future we are likely to see new rules on financing long-term care shake up the sector and also growth in equity release as it gains acceptance among ‘asset rich, cash poor' retirees.
Annuities should be an area of particular interest to advisers as the market gains both in size and sophistication. Fewer than one in five annuity buyers currently buy an enhanced product, although our research suggests the figure who could actually qualify is closer to six in ten.
The retirement income market is one where there is no ‘one size fits all' solution, particularly following new rules on drawdown and the leaps we are seeing in both underwriting expertise and technology that are revolutionising annuity pricing. It is no longer enough to look at individual risk factors and treatments on a basic level to determine pricing. We are scouring the latest research seeking to understand the overall effects on life expectancy of combinations of diseases, lifestyle issues, drugs and therapies. We believe we are fast approaching a time when everyone will be individually assessed for an annuity based on their own, unique health and lifestyle factors.
It won't just be clients who benefit from fairer pricing, but advisers too. Low-cost providers and supermarkets have an advantage selling identical products to a mass market. One way advisers will be able to compete will be to focus on delivering a more bespoke and intelligent retirement strategy, backed up by high levels of personal service.
A big challenge for advisers will be how to create businesses that give the client the individual service they want at a price they are willing to pay. While it might be tempting to try to streamline the annuity process as much as possible by using simplified questionnaires that would take us back to where we were ten years ago. The reality is that if the detailed information is not available then the risk is harder to price, leading to the insurer having to make more cautious assumptions. The client feels the impact in terms of a lower income.
Far better solutions are available such as tele-underwriting where trained medical professionals run through a more comprehensive question set. The main benefit to the adviser is that the workload is passed to a specialist who better understands the health issues and is also one step removed from the adviser-client relationship.
Our experience is that outsourcing what is often an undesired task can deliver the detailed information needed for more accurate pricing and higher value for an advisers client. Our feedback is that clients accept and even appreciate the extra scrutiny _ they feel more comfortable with the process and confident that the outcome truly reflect their own circumstances.
Financial advisers now have a matter of months before the RDR takes effect, bringing new challenges and competition. Retirement advice is set to be one of the key growth areas of the future. The Olympics showcases the abilities of the sporting elite - the RDR could yet do the same for advisers.
Steve Lowe is group director of external affairs & customer insight at Just Retirement
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