Why are advisers put off by guaranteed drawdown?

Pensions-savings-retirement-piggy bank

Advisers remain split over the benefits of guaranteed drawdown after a report argued many are unfairly dismissing the products as too expensive or complex.

Last week’s report by consultancy The Lang Cat says guaranteed drawdown products – often called unit-linked guarantees which combine drawdown with assured levels of income – faced a perception barrier amongst advisers who may overestimate the products’ costs. The Lang Cat also noted that providers should communicate the advantages of guaranteed drawdown more clearly to advisers.

Speaking to Money Marketing, The Lang Cat director of communications Mark Locke says that providers can overcomplicate guaranteed drawdown when pitching it to advisers.

He says: “There’s a blurring between selling and informing that’s an issue in these products across the piece. It makes things complicated, and the products are complicated enough. Its asking more of the adviser than you should be asking.”

Yellowtail Financial Planning managing director Dennis Hall says though advisers should look at guaranteed drawdown products, a combination of costs and reduced drawdown income often put clients off.

Hall says: “If you are independent you have got to be looking at the whole suite just to see if there’s suitability for that particular incidence and that client.

“But if you ask clients to produce their ideal product, you’ve got high flexibility, lots of income, and a guarantee. You can’t have all three together and the guarantee tends to be the first thing to go. If they really wanted guarantees they would buy an annuity.

“In my mind I have this 1 per cent drag which is the cost of the insurance. When you talk about safe withdrawal rates hovering around 4 per cent, if you stick another 1 per cent on that it’s beginning to look a lot like an annuity.”

However, Susan Hill Financial Planning founder Susan Hill says that guaranteed drawdown products are valuable solutions that many advisers do not have sufficient expertise in.

She says: “I’m not sure IFAs do understand what’s going on. Unless they really work in it, specialise in the area, have all the knowledge, they don’t necessarily know what it all means and the implications. I specialise and I sometimes despair with other advisers who don’t really understand what clients are getting.

“We need to stop looking at one solution, and look at a number so clients get a package. Advisers do need to start looking at this carefully. If you look at providers, they are coming out with different things and get to tweak them.”