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Ian McKenna: Can at-retirement advice really be delivered for £49?

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Can full “at-retirement” advice, including a personal recommendation, really be delivered for a flat fee of £49? This is the question many in the industry are asking following the recent announcement of The People’s Pension provider B&CE’s fixed fee service.

Given the historic cost of advice, it is understandable some are sceptical about what can be delivered for such a low price. To properly answer this question you have to look at what is behind the service.

The offering, which is actually provided by LV=’s advice arm, is powered by Wealth Wizards’ automated advice service. But this is not another execution-only offering looking to steer consumers towards making their own decisions based on limited information. The user is taken through an extensive process, which adapts based on the information entered and delivers a personal recommendation.

The depth of the process makes it unlikely users would go through it all in a single session but as an online process they can stop and start at their convenience. Wealth Wizards tells me most users do it in two or three sessions, as extensive details of their pensions, income and expenditure, attitude to risk and capacity for loss as well as state of health are required.

Particular attention is paid to identifying the level of income a user needs to pay their living expenses and where income can be more flexible. Many other elements, which are too long to list in full here, are captured as part of the extensive process.

Algorithms are then used to assess the client’s situation and generate advice. The Iress impaired annuity service is included within the process, so any health impairments are allowed for in the advice.

At the end of the journey, the customer is provided with a detailed suitability letter based on their circumstances. The LV= implementation delivers advice on what it believes to be the most suitable blend of annuity and drawdown products on a restricted basis. This allows for annuity providers that represent over 80 per cent of the market and LV=’s own open architecture drawdown product. Wealth Wizards say this could be extended to reflect the impact of other products such as Isas, bonds and GIAs.

The £49 fee for the initial advice compares favourably with the £199 charge for retail users of LV=’s Cora system, which is essentially the same service. In each instance, if the customer wishes to execute the recommendations, a further fee of £499 applies. Where a drawdown product is recommended, ongoing advice on this element is available for a 0.5 per cent per year, although this is optional. All the above charges include VAT.

Importantly, the system monitors the advice processes and will raise internal red flags where there are situations that warrant further investigation. Although Wealth Wizards’ system can deliver the suitability letter immediately at the end of the process, LV= has chosen to conduct a manual check of each recommendation before it is released. The automation delivers advice in a fraction of the time needed by a manual process.

To coincide with the launch, The People’s Pension commissioned YouGov to conduct research on how consumers would prefer to receive retirement advice. While face-to-face advice is still the preferred option for 59 per cent of people, 30 per cent said they would prefer to use an online service.

Having looked at its process and the outputs, Wealth Wizards should be congratulated for delivering a robust, scalable service at a price that makes advice accessible to the millions that cannot afford the face-to-face option. It has also delivered an important lesson to the industry on how technology can be used to drive down the cost of advice.

An increasingly diverse range of automated advice services are now coming to market and YouGov’s research demonstrates there is a considerable consumer appetite for them. Having a digital advice strategy must now be an essential part of any long-term savings organisation’s or adviser firm’s business plan, unless they are prepared to miss out on the biggest commercial opportunity in a generation.

Ian McKenna is director of the Finance & Technology Research Centre

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Comments

There are 12 comments at the moment, we would love to hear your opinion too.

  1. This will catch on like 3D tvs did and driverless cars will. Please provide a cost/benefit analysis of investing in this “essential part of any long-term savings organisation’s or adviser firm’s business plan” v the clients needed to make this profitable.

    • Christopher Petrie 2nd April 2016 at 2:47 am

      I’m sure driverless cars will become the dominant form of transport within the next 25 years. I’m far less sure full drawdown “advice” via a computer for 49 quid will, however…..

  2. At Retirement advice delivered for £49??????????????????????????????????????????????? This I have to see!

  3. The process and system are probably great and the results may also be very good. I suspect where they will run into difficulty is finding enough people who are prepared to commit the 3 sessions (probably 3 hours) to complete the input sections. At the end of such a lengthy process would you really be confident that you had entered all of that information correctly. Would you bet your future on it??

    I’m just hoping they’ve done their market research before spending millions developing it. I suspect that this may be a great product with few customers.

  4. Not on your nelly.

  5. Interesting to note that the advice is £49 and the implementation (where needed) is ten times as much. A rather counter-intuitive value proposition!

  6. So again, the figures show almost double the number prefer face to face advice.

  7. Leave them to it, it will proberbly be the type of client you don’t want anyway and after a cost benefit analysis it will more than likely be changed/shut!

  8. Less than the cost of a plumber? When are we (ie the ‘industry’) actually going to value ourselves?

  9. What a great article Ian…. after much being talked about over pension wise and its cohorts saying, to offer guidance costs around £550 per appointment, now we have a full advice service touted out at the very reasonable cost of £49 quid (surprised they did not go the whole hog and say £49.99 ?) so again bucking the trend (if a headline asks a question it will always be a no) I will say YES you can, offer a full advice service for £49 quid, I would go even farther and say you could do it for nothing ! the real question is ………. how long you stay is business ?

    Still, this is the outcome when the regulator, government, panels, consultancy groups etc etc etc are fixated on cost, rather than tackling the real issues on WHY advice and (must be said) guidance costs are rising !

    Algorithms will rule the world………..

  10. Philip Castle 4th May 2016 at 4:41 pm

    Surely the fee has to exceed the cost of and FOS complaint?

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