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