Remodelling Retirement: Part 2
Financial advice has never been more in demand. Are you ready?
The uncertainty caused by the pandemic should, in theory, have prompted individuals to pay more attention to their finances. Yet, research from Canada Life shows that more than three-quarters of those aged over 55 had not logged into their pension online in a year. Almost a quarter of those responding admitted they did not know how to access their pension online or found it too ‘complicated’. ¹ For our industry, this is as much a challenge as it is an opportunity: the need for advice has arguably never been more apparent, yet barriers remain in providing it. How can we change this for the better for those saving for or approaching retirement today? As part of the Remodelling Retirement series, brought to you by Professional Adviser and Canada Life, we are highlighting the challenges the adviser industry is facing as the path to retirement for individuals changes. As we enter a new era of retirement and advice, there is a particular need for advisers to help investors ‘look ahead’ and ‘act now’ if they are to assist them in securing a comfortable retirement. You can access Part 1 of our series here, which offers exclusive insight into five new journeys individuals are on as they approach retirement.
Choose a chapter
‘Look ahead, act now’: How a global pandemic refocused retirement
‘Clients don’t know what they don’t know’: The adviser challenge of providing advice
VIDEO: 65 as an age for retirement has not been relevant for a long time…
The adviser view: How new retirement journeys are challenging traditional advice models
Back to menu
1
2
3
4
5
VIDEO: Answering the difficult questions on the future of investment returns
¹ canadalife.co.uk
6
The client view: Who are the retirees of today?
P1
Click here to access Part 1
The pandemic brought home to a lot of clients the unexpected nature of investment returns and the impact those can have on retirement planning Andrew Tully, technical director at Canada Life
“Retirement planning often focuses on investment illustrations that observe a 4% or 5% rise every single year. That looks great on paper. In reality, it is not what happens. Covid-19 was the biggest example of what happens when market unknowns impact the world around us and retirement planning can change significantly as a result.” Even beyond the initial factor of older people having to reconsider their retirement plans, one of the pandemic’s lesser-known effects is how it has refocused the need for clients to think long term and assess their choices and plans for retirement much earlier. Because even the most widely discussed and best laid plans still have a way of derailing.
Look ahead, act now: The key questions for retirees in a post-pandemic era
By their very nature, unprecedented events are rare. Yet their impact is often profound, bringing to the fore a once-in-a-generation lifestyle change that can turn industry norms on their head. Take the coronavirus pandemic and retirement planning. According to survey of 10,000 people aged 50 or over by the Institute For Fiscal Studies (IFS), one in eight older workers have changed their retirement plans as a result of the coronavirus. One in three reported a worse financial situation and some 13% of older workers have changed their planned age for retirement as a direct result of events in 2020. Of this 13%, the majority are planning to retire later than they had intended, at least in part because of a drop in the value of their pension fund.
The importance of regular client reviews with an adviser have become so critical in the post-Covid-19 era, as we navigate choppy economic conditions.
Jarvis explains: “As a non-advised client last March, it would have been very easy to ask ‘What's going on? The market is too volatile; I am going to sell out immediately.’ Yet most advisers were telling clients to remain calm, ride out the storm and focus on the long term. That view has absolutely been proved right over the past year. Whilst markets do not always rebound, the general principle of focusing on the long-term has held true for many years. As individuals we are not necessarily trained to abide by that however.” This new environment arguably requires more planning discussions and investment and portfolio reviews. Ultimately, there is a need for advisers to help investors ‘look ahead’ and ‘act now’ if they are to assist them in securing a comfortable retirement.
01
02
03
04
Income, income, income: Do you have enough for retirement?
The pandemic is re-emphasising long-term changes about future retirees
The client-adviser relationship is evolving
In the future, retirement may not be so rosy for the majority
Back to the key questions
For many clients, the pandemic has refocused their mind on the income they will need in retirement and the danger of sequence risk – the negative timing of withdrawals from retirement assets that would damage overall returns. “When you're taking an income in retirement, you never want to be drawing out of an investment that's falling dramatically because that is going to result in a bad outcome,” explains Tully.
In 2013, the introduction of the Retail Distribution Review saw advisers move to a ‘relationship’ model with clients and set about the structure of clients having regular portfolio reviews. Arguably, RDR gave birth to a new style of adviser charging model under which they were no longer paid commission for recommending products but receive fees from clients directly. The reforms by the FCA aimed to make the retail investment market better for consumers, and despite teething problems, it has done so in many ways: it has improved transparency, advice is today more regulated and overall, the customer experience is better. However, it has also restricted access to advice and only those clients that can afford it can now take on a financial adviser. This is not ideal given the way people spend their money and save for retirement is changing, fast. Canada Life research, in partnership with forecasting specialists Trajectory¹, shows the changing shape of retirement has created five new retirement journeys. It is these journeys that will be more prevalent in years to come. These journeys predominantly focus on individuals with defined contribution pensions, and with varying financial situations that are likely to make retirement more complex.
With the need for individuals to focus on retirement planning earlier on in their life, clients are likely to need help managing their finances for longer. The pandemic has also seen a new type of relationship between clients and independent financial advisers emerge. Many retires are having to retire later than they hoped as a result of the pandemic. Whether this is through choice or necessity, these individuals will need more tailored advice that can help them achieve their retirement objectives. The relationship with an adviser will also be much more involved and is unlikely to stop at retirement. Perhaps it is no surprise then that many financial advisers have begun to reposition themselves as financial ‘coaches’ over the past two years as they aim to help their clients build a retirement plan that can deal with significant life challenges too. Wise Monkey Financial Coaching founder Simonne Gnessen explains the benefits of advisers working with coaches, and the effect the two can have on the client by working together is to empower and educate clients so at the point when they're ready for investment advice, they can refer them to an adviser.
Ever since pensions freedoms were introduced in 2015, the option to access some of your pension savings as a cash sum at 55 has meant retiring by 55 has also become a core focus for individuals in corporate employment. According to research by Hargreaves Lansdown in 2020, adults under the age of 34 expect to retire when they are 63, on average – but one in eight respondents are aiming to retire by 55. Yet as life for those under 50 currently becomes more complicated, financially speaking, the prospect of this is also likely to be difficult. According to Canada Life’s Changing Shape of Retirement research¹, a new segment of individuals is set to fall into a category called ‘Complex Families, Complex Finances’.
Remodelling Retirement: Part 2 Menu page
2.5%
By investing savings in cash, individuals could be losing circa 2.5% a year; for retired people it is probably more than that says Tully.
They will effectively be losing money from that part of their portfolio, and other investments will have to work harder to make up for those losses. Tully notes flexibility is key to ensuring individuals have options to de-risk their profile as they approach retirement. For example, The Retirement Account from Canada Life aims to offer a range of options that allow you to build up savings when you are working and then seamlessly move into retirement by offering a blend of income options. These options can be adapted to a person’s financial needs. Importantly, the account allows options that can also ensure your loved ones are looked after on your death, offering them a similar amount of flexibility and income.
“Covid-19 has seen all sorts of interconnected issues impact individuals of all ages. Children, young and older have moved back into family homes; parents are once again helping them get on the property ladder.” Kim Jarvis, technical manager, Canada Life
The client view: What does retirement look like for your clients in 2021?
Jarvis agrees, adding: “There are many moving parts for those coming up to retirement in the next 20 years. People are living longer, they will need more income for retirement. They may have to work longer as a result. They may not own their own property. They may have a complex family set-up through divorce or remarriage. Some of these parts are conflicting but are becoming very common for individuals today. Therefore, clients and advisers will have to try and navigate their way through these challenges in a sensible way that ensures individuals have enough to retire.”
Financial coaches, she explains, hold clients to account, empowering them to take actions over their finances and understand their financial landscape.
This segment will account for one-third of those over 60 – this is up from just a quarter compared to a decade ago. Their wealth and comfort is set to be challenged by financial implications of complex family, demands on their finances like divorce, caring for elderly relatives and second marriages. This combined with a low return market means many individuals may need to reassess their plans to ensure their expectations match reality. Tully explains: “People may look back, and think about a time when retirees received 10% a year from their investments. They will often ask, why can we not achieve that today? They are not necessarily thinking about the fact inflation was much higher back then and how those returns would have been dented. It is a similar story with annuity rates: They are much lower than they were. But the key is the guaranteed income level the client can achieve today and then comparing that to the other more flexible options available” Assessing what is a ‘good’ return level today is also more complex because of this.
63
in
8
Adults under the age of 34 expect to retire when they are 63
1 in 8 respondents are aiming to retire by 55
1/3 of those over 60 will fall into ‘Complex Families, Complex Finances’ over the next 15 years
“Others over the past 18 months will have dealt with redundancy, or the death of a spouse or a loved one. These are all things individuals will never necessarily plan for yet could have a profound impact on retirement savings - for the better or worse.” On the flip side, remote working and redundancy/furlough over the past year has also released older workers from their routine and pushed them towards an earlier retirement. For these individuals the ability to ensure their pension pot has enough money to see them through their later years is the priority. Aside from changes in individual circumstances, market conditions have been at times harrowing for those approaching retirement as well. From record lows to record highs, questions about over-valued stockmarkets and whether we will experience a recession in 2021 continue to dominate headlines.
|
‘Look ahead, act now’
How a global pandemic refocused retirement
The issue today is that it is difficult for those close to retiring to know where to invest as return prospects are still very low. Investing in cash and low risk assets may be just enough to cover charges or even edging towards inflation. That has forced some retirees to relook at their strategy around sequencing risk.
If interest rates remain at their record low rates through to 2022, or possibly turn negative, the impact on overall pension portfolios will be significant - especially if individuals choose to invest in cash.
We've got clients that need help that we [coaches] can't help, and they might have clients that need extra handholding. Simonne Gnessen, founder, Wise Monkey Financial Coaching
The need for clients and advisers to work together and find flexible solutions that match their income requirements is becoming crucial, particularly since the introduction of the pensions freedoms Andrew Tully, technical director at Canada Life
People often forget to factor in inflation but getting 20% in returns when inflation is 18% is worse than achieving 5% with inflation at 1%. People don't always see that because they are focusing on the bigger number. Andrew Tully, technical director, Canada Life
Ever since pensions freedoms were introduced in 2015, the option to access some of your pension savings as a cash sum at 55 has meant retiring by 55 has also become a core focus for individuals in corporate employment. According to research by Hargreaves Lansdown in 2020, adults under the age of 34 expect to retire when they are 63, on average – but one in eight respondents are aiming to retire by 55.
Tully explains: “People may look back, and think about a time when retirees received 10% a year from their investments. They will often ask, why can we not achieve that today? They are not necessarily thinking about the fact inflation was much higher back then and how those returns would have been dented. It is a similar story with annuity rates: They are much lower than they were. But the key is the guaranteed income level the client can achieve today and then comparing that to the other more flexible options available” Assessing what is a ‘good’ return level today is also more complex because of this.
Yet as life for those under 50 currently becomes more complicated, financially speaking, the prospect of this is also likely to be difficult. According to Canada Life’s Changing Shape of Retirement research¹, a new segment of individuals is set to fall into a category called ‘Complex Families, Complex Finances’.
This segment will account for one-third of those over 60 – this is up from just a quarter compared to a decade ago. Their wealth and comfort is set to be challenged by financial implications of complex family, demands on their finances like divorce, caring for elderly relatives and second marriages. This combined with a low return market means many individuals may need to reassess their plans to ensure their expectations match reality.
Source - 1. Source: Research for Canada Life was conducted in partnership with Trajectory, a strategic futures consultancy. It uses horizon scanning to identify the key trends shaping retirement now and in the future (to 2035), to identify a series of new models of retirement or journeys through later life.
The need for a modern pension plan that can help you take advantage of pension freedoms on your clients’ behalf is a must, as Canada Life retirement solutions director, Nick Flynn explains.
Are individuals today more cautious as they approach retirement? We have not seen direct evidence of this yet, but I do believe we will move in that direction overall. Since 2008, we have seen fund values and pension values move steadily higher and higher without any real shocks to the system or significant market falls. But this time last year we had an enormous shock. It was unprecedented and for the first time ever we did not know how or if things would recover. Everyone has been reminded and become much more aware again that the stock market is a volatile entity, and markets can go more than one way. Coupled with that, the onset of a pandemic - which no one would ever have predicted, even as a ‘known’ market unknown – coupled with ongoing political woes has meant there is a need to focus on planning for a retirement that is flexible and will be able to meet retirees' short and long-term needs.
Is there a need in 2021 to review client risk appetite or assess their risk and suitability for the areas they are invested in? Has this become more important? Yes, absolutely. The review process is critical to maintaining a firm hold on clients' objectives at any time. But 2021 is a great opportunity to change things up because if you advised on a top of the range product in 2015, there is almost certainly a better version of the same thing out there now. In fact, competition and technology have seen charges drop dramatically, so why not help your clients take advantage of that? The pandemic has also seen many individual circumstances change too, and many people are finding themselves in different scenarios that they had not imagined. Retiring earlier or later, for instance. There will almost certainly be new and more flexible products to suit them in the market today.
How do you see regulation impacting the financial advice world in the coming 12 months? We have had a number of significant regulatory changes come into force over the past decade. Regulation that has changed the provider/adviser industry overall. Regulations will always be an important part of the work both providers and advisers do. My hope is that new regulation doesn’t stifle the industry or doesn't distract people from joining the industry.
Let’s talk about the Canada Life’s Retirement Account solution. What is unique about this product? The Retirement Account is unique in the way it is packaged and the fact that you can do so much within one product and one wrapper. We have expanded the investment choices quite significantly in terms of the funds available and it has become a more comprehensive package. The annuity works particularly well given that can be based on enhanced terms, so if someone is a smoker or a drinker for example, or is overweight, has had heart problems etc, they could gain the benefit of having the enhanced annuity within the drawdown plan. So, it can give quite substantial flexibility to individuals that reflects their lifestyle and needs. The ability to simply turn down or even off the annuity income creates great flexibility and planning opportunities.
Who is the typical Retirement Account customer? We have got lots of people that go into that product that have annuity only, or that have a bit of annuity and a bit of drawdown or have complete drawdown. The nice thing about the product is they can pick and choose the future scenario that best suits them and change their plans accordingly. For example, if they have half annuity, half drawdown and they decide that they do not need some of the annuity income anymore, they can reinvest through the accounts drawdown element or defer it. That isn't available under ordinary annuities, but it is available under the Retirement Account. The account can also help the policyholder and dependents control income tax when they are alive and when they die. For example, any unspent income or fund can be passed down to anyone that the policy holder wants it to, as long as they've completed an expression of wish form and our terms and conditions. That flexibility is more essential than ever as people live longer and lifestyles changes. We are pretty proud of what we are offering, and it's gained significant traction since it was launched.
How can it help younger clients in terms of the accumulation phase or consolidating pensions? You can combine pensions into a plan prior to making retirement decisions with the Retirement Account. So, someone in their 40s or 50s can go into that plan with the view of having that flexibility in the future. Most people tend to turn their attention to retirement a bit later in life, but it's a good way of consolidating pensions and offers huge choice and flexibility.
What do you think the key challenges are for people approaching retirement today? Often we find people don't know what they don't know, so it is a case of understanding the choices that are on offer to them. Key to this is undertaking and using an adviser that understands you. For example, I’ve spoken to people many times who have said ‘The ISA is our nest egg, we're leaving that alone’. This is fine, but they could take an income from it tax free which would be a nice supplement to their retirement income, rather than overburden the pension and paying additional taxation. Retirees today have so many options and we must ensure we help them take advantage of them as much as possible.
The Retirement Account What is it?
A unique low-cost, flexible personal pension plan that can be adapted to suit client needs – whether they are working, closer to retirement or already retired. As clients enter retirement you have the option of taking a guaranteed income, pension drawdown, or a combination of both.
What are the benefits?
Bring all your pension pots together under one plan
Choose from a wide range of investment funds
Enjoy a regular income or lump sums from the age of 55
Option to provide for your family when you die
Before retirement:
Before retirement, money in clients Retirement Account is used for the payment of retirement benefits and forms a part of their normal Pension Savings pot with regular and/or one-off contributions to build it up. They can also transfer pension savings built up elsewhere into the Retirement Account. The pension savings pot can also be invested in a range of investment options (see box).
At retirement:
When clients want to use their pension savings to provide an income in retirement, they can convert it to pension drawdown, which offers a flexible income, or a guaranteed income in the form of an annuity. The option to combine the two in a way that suits client needs is also available. This flexibility means that client retirement can even be phased gradually, retaining money in Pension Savings until they need it, or as a 25% as a tax-free lump sum withdrawal. The account can automatically pay the tax-free lump sum as regular income, to control tax and pay tax free income or as a combination of taxable and tax-free income to help maximise personal allowances and pay even more tax free income* (subject to excess personal allowance). Tax-free lump sum income will cease once the 25% has been exhausted.
In retirement clients can:
Pension drawdown A pot of money used for regular income withdrawals and occasional expenses that can also be left invested for growth e.g. house repairs or a new car.
Guaranteed income (annuity)
A guaranteed regular income for life to cover your everyday living expenses e.g. bills and food.
How does it work?
The Retirement Account investment solutions
The Retirement Account investment solutions are split into three ranges: Core, Governed, Extended. Each fund offers a different balance of potential risk and reward, based on the assets held.
Core Range
Governed Range
Extended Range
There is no additional cost for moving between the ranges or accessing investments from one or more of the ranges at the same time.
You can choose different funds for your Pension Savings pot and Pension Drawdown pot if you wish.
You can change where your money is invested at a later point - free of charge.
There are no minimum investment requirements.
“65 as an age for retirement has not been relevant for a long time…”
‘Look ahead, Act now’: How a global pandemic refocused retirement
What does it offer?
A series of low-cost, diversified, multi-asset funds
Covers a broad range of risk profiles
Funds which keep the balance of your investment in line with the risks you are willing to take
Active and Passive options
Funds that provide you with a regular income
14 exclusive insured funds which provide access to the investment expertise of Brewin Dolphin
Monitoring of all Core Range funds via the Canada Life governance framework
A fund which offers some protection from the ups and downs of the investment markets
This range may be suitable if you...
Want a range of simple, lower cost, ready-made funds
Need to ensure that your funds remain aligned to the level of risk you wish to take
Want funds that can hold a wide range of different investment types and the choice of having these managed actively or passively
Want choices that are easy to understand, managed by experts
Want access to the investment expertise of Brewin Dolphin within the flexible structure of The Retirement Account
Are happy to invest in the markets but would prefer some element of protection on your money
Wide exposure across markets
A range of actively-managed, single and multi-asset funds plus passive fund options
Well researched, value for money funds from established investment companies
Funds selected and monitored in conjunction with an external investment consultancy
Want wider access to investment markets than that offered by the Core Range
Have some investment experience and need additional flexibility
Want the reassurance that your funds will be monitored by Canada Life in conjunction with external investment experts – free of charge
Would like access to well-known, established funds but often at lower cost than buying directly
A comprehensive, industry wide selection of funds from multiple investment firms
Maximum exposure across sectors and markets
There is no detailed governance process on this Range
Want maximum access to investment sectors and world markets through a large number of specialist investment firms
Have a financial adviser who prefers to self-select funds
Are a more experienced investor looking for complete investment flexibility
'Clients don't know what they don't know'
The adviser challenge of providing advice
2021 is a great opportunity to change things up because if you advised on a top of the range product in 2015, there is almost certainly a better version of the same thing out there now. Nick Flynn, retirement solutions director, Canada Life
All information correct as at 1 June 2021. Your investment is not guaranteed as the value of your investment can go down as well as up. The way funds have performed in the past is no guide to the future and you might get back less than you put in.
Regulations will always be an important part of the work both providers and advisers do. My hope is that new regulation doesn’t stifle the industry or doesn't distract people from joining the industry. Nick Flynn, retirement solutions director, Canada Life
2021 is a great opportunity to change things up because if you advised on a top of the range product in 2015, there is almost certainly a better version of the same thing out there now. Nick Flynn, annuities, sales director, Canada Life
Planning for retirement today is much more than simply stopping work at 65. In fact, notes Canada Life’s technical director Andrew Tully, there are questions as to whether the figure of 65 is even relevant for retirement anymore, as individuals live longer, and the impact this has in terms of investing for retirement too. We explore the issues facing the industry and the rise of clients facing complex financial challenges in our exclusive Remodelling Retirement video series below.
‘Clients don’t know what they don’t know’
The customer view: Who are the retirees of today?
VIDEO
New retirement journeys are causing shifts in how individuals prepare for and enjoy retirement. This was a core focus of our Remodelling Retirement series in Part 1, which included exclusive research from Trajectory on five new retirement paths that are growing in popularity. You can access this eBook here. Three new challenges in particular are changing the way financial advisers work with clients.
Answering the difficult questions on the future of investment returns
Deregulation of life
Advisers are having to understand the new and varied accumulation journeys of customers – particularly in regard to issues such as later home ownership and family formation that could include ageing parents in care, or younger children in education. A key question advisers are asking is: Do customers need more contingency for more complex interactions?
Roger Roberts, independent financial adviser, Timothy James & Partners
Advisers are definitely seeing client life journeys that are very different from 20, and even 10 years ago. People are having children later, focussing on their careers for longer before starting a family, which leads to having commitments later in life, changing jobs and employers. Retirement is no longer really from age 60 now, with much more ‘phased’ retirement happening. As a result of high property prices, people are not getting on the property ladder until later in life, leading to a demand in lending to older clients. There are more ‘employed’ people becoming ‘self-employed’, adding a different dynamic to financial planning needs. Divorce rates are increasing adding to the complexity. Grandparents are increasingly assisting with education costs, or other support as required. And as people are having children later, the costs of schooling often occur at the same time as the peak mortgage borrowing period. Although costs in total are not necessarily higher, they do seem to be being compressed, or going over into retirement when income is lower. Costs that in past years would have been met by income are now requiring capital outlay, partly because of age and also because of fewer people having defined benefit pensions. It’s become more important to cater for this in a financial plan.
John Woolhouse, founder, Furnley House
People have always needed financial contingency in their financial planning. The easy solution to a growing problem is to suggest that clients should be better prepared to rise to the financial pressures. But the reality is that it comes down to financial bandwidth: whilst a client may need more in savings, they can only set aside what they can afford. The challenge comes in motivating clients. When the financial mountains seem too big, starting to save can be the biggest challenge. Advisers have the opportunity to encourage and provide sound financial advice. If we can show clients a small change made early can change the trajectory of wealth over time, then we have the opportunity to help our clients be better prepared when the more complex interactions arise.
John Porteous, head of central financial services, Charles Stanley
As complexity in life increases, so individuals need to ensure they provide for flexibility and contingency in their financial planning assumptions. Whilst it is often said that financial planning is about the fulfilment and funding of one’s dreams, it is also important that, where appropriate, it mitigates risks and uncertainties too. Whilst it is impossible to apply generalisations – as there are so many variables to consider – it is important to look at multiple scenarios and considerations as complexity often requires choices to be made. Arguably, the two most important words to inform a well-rounded financial plan are ‘what if’? This can apply to positive choices such as being able to change job and follow a ‘passion’ along with negative choices such as providing for a loved one in the event of an unplanned/unforeseen event. Whilst it might be impossible to simplify a customer’s individual or collective planning journey, it is entirely possible to help them prepare for unexpected twists and turns. This can be driven by effective questions around what is really important and the emotional and financial cost of certain choices that may have to be made further down the line.
John Ditchfield, head of responsible investment at Helm Godfrey
It is undoubtedly the case that flexible working is here to stay with higher rates of self-employment and the growth of portfolio-careers, more varied working patterns and a tendency for individuals to move between employers and careers more frequently. As a result, more people fall outside of workplace pensions and employer-funded insurance-based schemes. This certainly makes personal financial planning more complex. Individuals have to take on the burden of dealing with their tax planning, retirement planning and obtaining insurance protection against ill-health. It is also the case that changing demographics will impact financial planners. The UK has overall an ageing population with more people requiring later life care. This will place an increasing financial burden on families.
Time
The interrelation of wealth, working and healthy life expectancy has always provided scope for holistic planning for retirement such as which jobs, careers, skills and employment types will give more flexibility to keep working in later life, or potentially steering towards products that incentivise healthy lifestyles. But with more clients working in later life there is likely to be a greater demand for advice around tax, and financial advice is crucial. Could advice extend into new areas with partners in non-financial disciplines such as mental health?
An increased amount of self-employment and the setting up of new small businesses has seen higher levels of people working from home or locally to home, mainly to improve families’ lifestyles. We expect this to accelerate post Covid-19 as companies large and small allow a degree of flexibility for employees to spend time working from home. This could increase the longevity of the working life as travel pressures decrease, enhancing mental wellbeing. I believe the later-life increase of part-time working, contract and project work will accelerate. We already work with third parties, such as clients’ solicitors and accountants. There will be scope to work with the likes of Age Concern, later life specialists and mental health practitioners. This will be of increasing consideration as part of a client’s planning needs. The work we do with clients is all about improving their financial wellbeing. As a result, we believe that clients knowing their financial planning is ‘dealt with’ leads to enhanced mental wellbeing, as one ‘stress’ is dealt with. Financial worries are one of the biggest causes of stress; this can be reduced by having robust financial planning in place. There will certainly be an increasing need to consider how later-life working will impact on financial planning needs and requirements, particularly the appropriateness of products and advice. The relationship we have with our clients is deep, and some clients will speak with us before family about concerns with health and wellbeing rather than ‘worry their children unnecessarily’. A strong awareness of bodies that can provide advice will become more important over time.
It’s very difficult to introduce change. Whilst other industries such as the tech sector have moved and evolved to changing customer needs, the financial services sector has largely lagged behind. Many wealth management firms maintain a very corporate image and partner only with lawyer firms and specialist investment partners. Few have an edge like a company like Apple, which has moved seamlessly alongside changing clients' needs and lifestyles. Just as tech has successfully merged a phone, camera, sat-nav, and many other apps into a single device, consumers will want the integration of consultants when it comes to financial planning. At Furnley House, the Covid pandemic provided an unexpected opportunity to create much deeper relationships with our clients. We have always taken a holistic approach to financial planning, but we might not have crossed the boundaries of providing additional mental health and fitness support to clients if the country had not faced long periods in lockdown. We chose to make some of the resources we were providing to our staff also available to our clients. We opened up our Wellness Wednesday sessions of free online yoga, talks with health guru Rosemary Connelly and virtual cooking sessions. We moved our client social engagements online with wine tasting and topical investment talks. Whilst these projects were run specifically during the pandemic, new relationships with new non-financial disciplines were explored and welcomed by clients. We see that a much broader approach to partnerships will become increasingly important in the future.
The long-term impact in the UK (and globally) from the past year may easier to calculate financially than emotionally. We have not yet understood the full cost to society and the extent to which people will evolve into new working and living patterns. What has become very clear, however, has been the number of people who are reflecting on their lives and asking themselves three fundamental and existential questions:
Money
The financial lives of clients are now more complicated than ever and advisers will need to come up with more tailored, innovative, and holistic advice if they’re to remain relevant and valuable. This will involve thinking about the audiences they specialise in and their getting to know their ambitions as well as their financial ones. Questions are arising as to whether advisors should take a broader family, cross-generational approach to advice to deal with such challenges?
It has always been important to take a broader family approach to financial planning to preserve wealth through the generations efficiently. The changing dynamic of clients’ working patterns and the different requirements for family wealth mean you cannot view an individual client’s planning in isolation. Expert financial planning is becoming more important than investment performance. High housing costs (particularly in the South East) mean older generations are helping provide deposits for their children and grandchildren. This has to be planned for, alongside the increasing need for clients to factor in paying for care. More people require care, the costs of which go up frequently. A typical annual bill for one person of £50,000 requires significant funds. Proper planning is therefore essential to give clients choice as to when and how to use their money. Conversely, children are increasingly helping to support their parents in old age. Parents may have property but little else by way of pension or liquid assets, so there are choices to be made; these could include equity release or using money from children. All options should be considered; and there are many more now than only a few years ago.
The concept of providing broad family, cross-generational advice is one many advisers warmly welcome. But the opportunity to explore the broader family financial picture and provide solutions to fundamental problems is rare. It is the one thing that every adviser would like to provide for a family, but it incredibly difficult to achieve and for all sorts of reasons. Cross-generational attitudes towards money and saving can play a large part of the problem, as can sibling rivalry and lack of family dynastic thinking. Many of these issues are simply not culturally embedded in family financial thinking. For those who have inherited family wealth, preservation of capital for future generations can be a very straightforward conversation. For others, the answer lies in education. Talking to clients about complex financial products in a simple solution-based way opens gateways to the conversation. Including discussions about the wider family needs in a way which could go beyond the interests of any single individual is important. It is only when the financial benefits can be collectively seen that cross-generational based advice will be embraced.
To my mind, financial planning when well implemented and executed is the embodiment of value. It should inform, enlighten, reassure, and simplify in equal measure. That said, customers – both existing and prospective – are more exposed to technology than ever before. This can influence service, content, and communication expectations and to that extent, the challenge for advisers is more around remaining relevant. Good businesses constantly evolve. It is often most effective to do this in full consultation with your clients and co-create new services based on clearly defined and mutually appreciated needs. The intergenerational market is huge and also one where the events of the last year have opened the door for more families to discuss wealth and money (two fundamentally different concepts) when perhaps this may have been a taboo subject in the past. The importance of subtle questioning and empathy around relationship dynamics are significant when dealing with families, as is the good understanding of their collective relationship with money.
The adviser view
How new retirement journeys are challenging traditional advice models
What really makes me happy?
Why am I doing what I am doing?
Can I change anything?
Against this backdrop, it is entirely logical that we will see a greater convergence between the emotional side of financial planning (often characterised by ‘Lifestyle Planning’ ) and the more quantitative drivers. In the foreseeable future, I can envisage virtual teams where non-financial disciplines covering different types of therapy, health and life-coaching join with financial planners, accountants, and solicitors. Whilst this may start at the high net worth end of the market – I think this will become more commoditised and reach a wider cross section of the market over time.
All examples are hypothetical and do not bear any resemblance to persons living or dead – they are for illustrative purposes only. The examples are based on our current understanding of pensions and tax rules as at May 2021. Adviser comments are their own and were provided by: John Ditchfield, Head of Responsible Investment at Helm Godfrey John Porteous, Head of Central Financial Services, Charles Stanley, John Woolhouse, Founder, Furnley House Roger Roberts, Independent Financial Adviser, Timothy James & Partners
Fully comprehensive or holistic financial planning tends to overlap with other disciplines in law and accounting. But there is certainly scope for planners to take on different roles, particularly around supporting vulnerable clients. Given the increasing age of the population, it is inevitable that advisers will be called upon to support families well into retirement. This will require them to deal with complex issues, such as funding care, passing wealth on using trusts and gifts and potentially dealing with vulnerable individuals with impaired decision making.
Across my client group, I am working more and more on an intergenerational basis, especially with younger clients seeking to integrate their values and concerns around climate change into the investment process.
The use of video meetings will become the norm. Their use enables shorter, more frequent meetings with clients which helps deepen relationships. This technology makes it much easier to get family members ‘together’ to have discussions enabling cross-generational conversations. Of course, often one part of the family will wish to access information in a different format to another (e.g. online vs hard copies). It is crucial, therefore for full engagement to provide information in ways that suit all parties.
It’s very difficult to introduce change. Whilst other industries such as the tech sector have moved and evolved to changing customer needs, the financial services sector has largely lagged behind. Many wealth management firms maintain a very corporate image and partner only with lawyer firms and specialist investment partners. Few have an edge like a company like Apple, which has moved seamlessly alongside changing clients' needs and lifestyles. Just as tech has successfully merged a phone, camera, sat-nav, and many other apps into a single device, consumers will want the integration of consultants when it comes to financial planning. At Furnley House, the Covid pandemic provided an unexpected opportunity to create much deeper relationships with our clients. We have always taken a holistic approach to financial planning, but we might not have crossed the boundaries of providing additional mental health and fitness support to clients if the country had not faced long periods in lockdown. We chose to make some of the resources we were providing to our staff also available to our clients.
For those who have inherited family wealth, preservation of capital for future generations can be a very straightforward conversation. For others, the answer lies in education. Talking to clients about complex financial products in a simple solution-based way opens gateways to the conversation. Including discussions about the wider family needs in a way which could go beyond the interests of any single individual is important. It is only when the financial benefits can be collectively seen that cross-generational based advice will be embraced.
It is fair to say 2020 will be classed as the year of pandemic. And a year on, in 2021, economies are still feeling the wrath of this novel virus, even with a vaccine rollout underway. Looking forward to a gradual move to greater normality, there are questions on how economies and markets will behave over the long term, with concerns regarding the massive amount of debt being built up and the possibility of rising inflation. We speak to David Marchant, managing director of Canada Life Asset Management, who explores the challenges for investors, particularly those approaching retirement in the coming years.
The client view:
Who are the retirees of today?
Planning for pre-retirement Amanda, 54
Amanda owns a small successful clothes business and wants to retire in eight years’ time. She’s married to her partner who has her own workplace pension.
She’s married to her partner who has her own workplace pension.
They own their property outright and have a child who is at university.
When she does retire, Amanda and her partner have plans to travel the world.
Amanda wants to ensure that when she dies, any pension fund left benefits her partner and child. She has a Self-invested Personal Pension and two other defined contribution plans.
She has a Self-invested Personal Pension and two other defined contribution plans.
Amanda meets with her financial adviser who establishes her needs, objectives, risk profile and capacity for loss.
Amanda meets with her financial adviser who establishes her needs, objectives, risk profile and capacity for loss. Together they decide to consolidate all of Amanda’s pensions into The Retirement Account
Consolidating, simplifies the pension, resulting in reduced charges and a consistent investment strategy, that meets her risk profile.
Amanda likes that The Retirement Account as it offers a range of low cost, multi asset investment solutions, as well as several withdrawal strategies that can be utilised at any time.
Her adviser recommends a split of active and passive investment portfolio’s that are risk targeted to meet her needs. They are all held in one place.
To pay for her travel to see the world, Amanda plans on taking some tax-free cash from her Pension Savings to fund this in 2022
After Amanda and her partner return from their travels, she takes income from the Pension Drawdown element of her Account to top up her state pension to meet her income needs.
Amanda completes her expression of wish form so that her loved ones will become the beneficiaries of the account upon her death. (Establishing a family trust)
At retirement Pramod, 62
This is Pramod. He wants to retire next year.
He is married to his wife Priya, who is also 62.
They live in their detached house that they own, with one of their children still living at the home.
Pramod would like to buy a new car, as previously he had a company car.
Currently, Pramod has a ‘final salary’ pension, or Defined Benefit Pension that will provide him with a regular guaranteed income for life. His wife also has a final salary pension, through the bank she worked for, for over 25 years.
Looking at both final salary pensions, Priya’s final salary pension scheme provides better death benefits and the pension income does not suffer a State Pension Reduction Factor (so it does not reduce when the state pension kicks in).
In four years-time they will both be eligible for their state pensions. Both are forecast to get the maximum. In four years-time they will both be eligible for their state pensions. Both are forecast to get the maximum.
With both final salary and state pensions they will receive more guaranteed income than they will need – both now and in the future.
Pramod and Priya meet with a financial adviser to assess their needs, objectives, risk profile and capacity for loss.
Summary of actions: After advice from his adviser, Pramod chooses to transfer to The Retirement Account
He takes his some of his Tax-Free Cash to buy his first (nearly new) car.
Pramod takes income combining a mix of tax-free cash and taxable income (to use up his personal allowance) for the next 4 years.
This creates a very tax efficient withdrawal strategy until they get to State Pension Age.
He invests his pension in a risk targeted strategy, consisting of three pots – 1/3rd in Portfolio 3, Portfolio 5 and Portfolio 7. Withdrawals are made from Portfolio 3 and rebalanced annually. These consist of a combination of Active and Passive portfolios.
Once Pramod retires, he may want to secure some additional guaranteed, flexible lifetime income, with death benefits tailored to his needs, or remain invested until say age 70 or 75. Thus keeping invested longer, benefiting from any potential growth.
Pramod completes the expression of wish form, so that his loved ones will become beneficiaries of the account upon his death. (Establishing a Family Trust).
After or in retirement Mark, 68
This is Mark.
He is single and lives in a mid-terraced house, with a small mortgage left on it.
He is a smoker and takes medication for his high blood pressure.
He would like to pay off his remaining mortgage, buy a car and go on a couple of cruises.
Mark is close to his sister, Helen and would like her to be his beneficiary when he dies.
He retired last year, at the age of 67 and is taking his state pension, which requires topping up each month to cover his essential expenditure for the rest of his retirement.
Mark has a substantial pension pot, made up of several different defined contribution pensions plans.
As a risk-averse individual, he is looking for a pension that can give him some guaranteed income for life. He is concerned about losing money in the stock market and doesn’t want to put his entire pension fund into investments.
The portfolio needs to be low risk.
Mark talks to a financial adviser and they establish his specific needs, objectives, risk profile and capacity for loss.
Summary of actions: After receiving financial advice Mark chooses The Retirement Account
He consolidates all his pensions pot’s; this both simplifies the plan and reduces costs.
He takes most of his 25% tax free cash to help pay his mortgage off, buy a car and this year’s cruise. Reserving some Tax-Free Cash for next year’s Cruise
He uses some of the pension fund (crystallised in Drawdown) to secure the appropriate amount of guaranteed, flexible lifetime income to top up his State Pension.
He also includes 100% Money Back death benefits, to ensure when he dies, his sister would inherit the remaining value within the pension plan.
Each month he receives this underwritten guaranteed income for life.
He can reduce or stop and restart this income at any-time, to control tax.
At the same time, the remaining invested funds are his to spend, or he could switch to purchase more Guaranteed Income later, and then know all the remaining fund and income will go to his sister
Mark completes the expression of wish form, so that his Sister will become the beneficiary of the account upon his death. (Establishing a Family Trust)
They own their property outright and have a child who is at university. When she does retire, Amanda and her partner have plans to travel the world.
Summary of actions
Amanda likes that The Retirement Account offers a range of low cost, multi asset investment solutions, as well as several withdrawal strategies that can be utilised at any time.
To pay for her travel to see the world, Amanda plans on taking some tax-free cash from her Pension Savings to fund this in 2022.
He takes his some of his Tax-Free Cash to buy his first (nearly new) car while taking an income combining a mix of tax-free cash and taxable income (to use up his personal allowance) for the next 4 years.
Pramod and Priya meet with a financial adviser to assess their needs, objectives, risk profile and capacity for loss. After advice from his adviser, Pramod chooses to transfer to The Retirement Account
Pramod wants to retire next year. He is married to his wife Priya, who is also 62. They live in their detached house that they own, with one of their children still living at the home.
In four years-time they will both be eligible for their state pensions. Both are forecast to get the maximum.
Each month he receives this underwritten guaranteed income for life. He can reduce or stop and restart this income at any-time, to control tax.
At the same time, the remaining invested funds are his to spend, or he could switch to purchase more Guaranteed Income later, and then know all the remaining fund and income will go to his sister.
He consolidates all his pensions pot’s; this both simplifies the plan and reduces costs. He takes most of his 25% tax free cash to help pay his mortgage off, buy a car and this year’s cruise, reserving some Tax-Free Cash for next year’s Cruise.
Mark then uses some of the pension fund (crystallised in Drawdown) to secure the appropriate amount of guaranteed, flexible lifetime income to top up his State Pension.
Mark talks to a financial adviser and they establish his specific needs, objectives, risk profile and capacity for loss. After receiving financial advice Mark chooses The Retirement Account
Mark is single and lives in a mid-terraced house, with a small mortgage left on it. He is a smoker and takes medication for his high blood pressure.
Back to profile selection
Choose a profile to view
Amanda meets with her financial adviser who establishes her needs, objectives, risk profile and capacity for loss. Together they decide to consolidate all of Amanda’s pensions into The Retirement Account.
