He adds: "One of the Financial Conduct Authority's key messages from its defined benefit transfer work was making sure communications are clear and transparent.
“So, for example, not comparing a lump sum death benefit through one solution to a yearly pension for a partner through another. Aspects like that can unconsciously lead a client down a particular route, whereas the overall benefit can be very similar.”
Cash flow modelling, which many advisers use, is an important tool Tully says can help clients build up a picture of their retirement over the medium term rather than just focusing on the here and now.
CRPs
With increasing demands on firms; the need to ensure the cost to the client is appropriate; detailing those costs on an annual basis; demonstrating they fully understand the products they recommend; evidencing those products are in the best interests of their client; and making sure all this is done on a consistent and efficient basis across a firm may lead some advisers towards establishing a centralised retirement proposition to sit alongside their centralised investment proposition, says Tully.
A study by financial services consultants AKG found that 73 per cent of advisers surveyed said their firm had already launched a separate/distinct CRP. Meanwhile, 19 per cent said their firm had not yet launched a CRP but were planning to do so in the next 12 months.
Where a CIP is used to determine underlying assets, CRP determines how and when the income is drawn from the pension(s) in order to generate a sustainable retirement income.
And although there is no regulatory requirement to have a CRP, Tully notes it can help build a framework that enables adviser firms to manage the various interrelated risks of giving retirement advice while helping address the issues clients face as they enter retirement.
Cecilia Furner, interim distribution director – retail annuities at Legal & General, says having a CRP framework helps the adviser to offer a clear, consistent and repeatable advice process that deals with risks in retirement – and these are very different from accumulation risk.
She adds: "It should be focused on the client’s ability to bear loss, and this is where annuities offer certainty – fixed term and lifetime – it adds longevity protection, certainty and an underpin for portfolios. Considering this alongside the benefits of drawdown for clients throughout retirement will ensure the best outcomes.”
