The retirement advice market is in the middle of a huge shake-up, but there is still a distance to go before it can meet the needs of punters

First, in January 2013, there was the Retail Distribution Review (RDR). It banned commission payments on pension products in favour of up-front fees, and advisers had to take additional qualifications. Many advisers withdrew from the market.


Then, in April 2015, there was pension freedom and choice. It gave everyone over the age of 55 total flexibility over their pension savings. Many wanted advice about what to do with their retirement pot.

The number of advisers had gone down, but the number of people wanting advice had gone up. The amount people were willing to pay for advice had gone down, but the amount of knowledge and support that they needed had gone up.

New technologies can play a major role in driving down the costs

Then, in March 2016, there was the Financial Advice Market Review. It acknowledged that many things had gone down, while others had gone up, and that something needed to be done. It said “new technologies can play a major role in driving down the costs of supplying advice and enabling firms to engage with consumers more effectively.” It called for a “clear framework to give firms the confidence to deliver streamlined advice on simple consumer needs in a proportionate way.”

In the midst of all these changes, the pension advisers were trying to do their job. Research released by Prudential, in November 2016, showed that 50% of them are working more than 40 hours a week. Not only had freedom and choice pushed up their workload, but reductions to the lifetime allowance and annual allowance, as well as the annual allowance taper, had made life more complicated for savers and advisers alike.

Nearly half believed that robo-advice would not help to close the advice gap

The research also found that advisers were having to rethink their workflow and business models as a result of the changes. Sometimes that meant introducing or directing clients towards robo-advice (or digital advice, as others prefer). But, according to Prudential’s research, advisers were not convinced. Nearly half – 47% - believed that robo-advice would not help to close the advice gap.

Prudential’s report offered a stark warning: “Any adviser who ignores the advent of the digitalisation of advice does so at their peril. Advisers will need to keep themselves informed as this develops, embrace the opportunities it provides and learn to work in conjunction with it.”

Talk of robo-advice usually implies all-or-nothing

Prudential’s director of specialist business support, Vince Smith-Hughes, says that there is still much to do to help advisers see the role that digital advice can play alongside more traditional methods. “Talk of robo-advice usually implies all-or-nothing, but it’s rarely that.”

He points out that, in addition to digital advice, streamlining advisers’ workflow could help to keep time and costs down. “If face-to-face remains the most valuable piece, we need to make efficiencies around that. For example, someone else could take care of basic data management in advance of a consultation with the client. Many advisers need to improve their infrastructure and back office, as well as making more use of telephony and tools such as Skype where appropriate.”

He also points to greater collaboration with other professions, such as accountants and solicitors, “combining propositions to build a bigger service”.

Blending robo-advice with more traditional methods and improving back-office processes aren’t the only changes that freedom and choice could drive. As drawdown becomes a more popular option, charging models may also need to be reconsidered. A pricing model that charges a percentage of a total fund which shrinks over time as the client withdraws more money is hardly an attractive proposition on an on-going basis.

There are the new challenges of handling small pots and adding value

Then, of course, there is the thorny but inevitable question of whether some business is actually viable for advisers at all. “Freedom and choice has changed the type of client,” says Smith-Hughes. “There are the new challenges of handling small pots and adding value.”

And, of course, “there is also a ‘no’ proposition,” cautions Paul Harrison, head of Prudential’s business consultancy. “If it’s not financially viable or not right, advisers can always turn the business away.”

With advisers yet to be convinced of the case for digital advice and existing human resources overstretched, Prudential’s research shows that the task of supporting the advice needs of freedom and choice clients is far from complete. The solution will lie in effective collaboration between advisers, third-party bodies like The Pensions Advisory Service, digital advice providers and other associated parties such as accountants. No single entity can solve the problem alone.