Leading lights of the planning, pensions and investment space share their best guesses for how advice will evolve in the year ahead
Cash will (initially) be king
At the start of 2019 the temptation to move into cash will be very strong indeed for clients approaching or in retirement as market volatility and the uncertainty around Brexit continues.
Advisers will have to be on their game reassuring them that their investments are suitable and that they should stick to their plan. The use of risk-based cashflow plans to illustrate the range of potential returns likely to be encountered and test risk capacity, will be invaluable in helping clients stay on track.
With the challenges of sequencing risk, annual reviews and the need to generate regular income for clients over increasingly extended lifetimes more and more firms will build centralised retirement propositions in 2019. For the early adopters there is an opportunity to differentiate from peers and competition here and to attract new clients while extending services to existing ones.
Ben Goss is chief executive at Dynamic Planner
Pensions focus to turn to social care funding
Another promise from the government is to launch a consultation on social care funding.
We’re hoping for a clear, fair and sustainable solution, setting out what the government will pay and the contribution expected from individuals, depending on their wealth, and crucially with an overall cap.
This will allow individuals to plan ahead while protecting inheritance aspirations. We expect the government to consider how pensions might be used as a means of planning ahead for the costs of social care in later life.
Steven Cameron is pensions director at Aegon
DB transfers will stay high, but decline eventually
Savers dashing to exit their defined benefit pension schemes has been one of the big stories of 2018, with the collapse of big-name sponsors like BHS and attractive transfer values tempting savers to swap stability for flexibility.
The pension freedoms – and particularly the generous tax treatment of defined contribution pensions on death – may also have played a part, while many will inevitably have been tempted by the stellar returns on offer in recent years.
Those who transferred in the hope of making a quick buck on the markets will have faced a rude awakening this year as stocks have tumbled in value.
Transferring can be a perfectly sensible move in the right circumstances but anyone taking this step needs to fully understand the risks involved.
Over the longer term we expect the volume of transfers to decline, partly as a result of advisers exiting the market as the FCA tightens its focus on the market. Rising insurance costs will also likely push many advisers away from business that is deemed risky by professional indemnity firms.
Despite that, the decline of DB is likely to be a story that runs through into 2019, particularly as once mighty high street giants struggle desperately to make ends meet.
Tom Selby is senior analyst at AJ Bell
Regulatory reviews will draw out key themes for advice
This year, four major FCA reviews have considered the effectiveness of retail financial markets including advice, products and investments: the Asset Management Market Review; Retirement Outcomes Review; Platforms Review; and Non-Workplace Pensions Review.
These reviews are at various stages of advancement; the Asset Management Market Review was completed in 2017, however proposed remedies are still being discussed, and the Non-Workplace Pensions Review has only recently completed its data gathering phase. Rather than consider each of these reviews in isolation, it’s worthwhile for firms to consider what these could mean collectively for their future strategy, business model and customer propositions.
The four key themes of ‘simplicity’, ‘transparency’, ‘comparability’ and ‘ease of switching’ are likely to come through loud and clear across all four reviews. In other words, make it easier for consumers to see and understand what they are getting, who is getting paid for it, what they could have if they switch providers, and make it easy to move should they want to.
Pete Glancy is head of policy at Scottish Widows
Brexit confusion will continue
In broad terms, Theresa May’s no confidence vote has done little to reduce the uncertainty surrounding the Brexit process.
Parliament still looks unlikely to support May’s proposal in its current form and it is far from clear what happens next if this proposal is rejected in the new year. To simplify a highly complicated range of scenarios, we would focus on the following broad, potential outcomes:
- Theresa May pivots towards a softer Brexit, making changes such as a commitment to permanent membership of a customs union – the Labour Party preference. The aim would be to garner cross-party support for the deal to overcome the split within the Conservative Party. The path to this outcome would involve substantial political turbulence and potentially a delay to the Brexit process.
- Labour proposes a vote of no-confidence in the government, with a view to triggering a general election. If this was held today, Theresa May’s government would be likely to survive, but the margins are slim and the probabilities would change if the prime minister continues to lose political support in the months ahead.
- Brexit postponed: If parliament remains gridlocked, it is quite possible a decision could be made to postpone Brexit, opening up the prospect of a second referendum or even the no-Brexit scenario. In our view, the European Court of Justice’s recent ruling that Britain can unilaterally revoke Article 50 significantly increased this scenario; one thing that parliament seems to broadly agree on is avoiding a no-deal Brexit.
Paul O’Connor is head of Janus Henderson’s UK-based multi-asset team