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Billy Burrows: Next chapter of pension freedoms must focus on advice value

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Now that the pension freedoms have bedded in it is time to turn to the next chapter of the book. The first chapter dealt with Chancellor George Osborne’s March 2014 Budget bombshell, while the second was devoted to getting ready for the rush to take lump sums from implementation in April.

The next chapter should highlight the importance of advice: why individuals ignore it at their peril, as well as how advisers can make sure they obtain the best outcomes for clients.

I hope to help write this chapter in these pages over the coming months and can think of no better way of doing so than by looking at what I call the “skills of the trade”. Although every adviser has their own retirement income advice process and personalised way of dealing with clients, they all need a number of specialised skills. I have identified the following:

  • Foresight: We cannot predict the future but we can monitor the trends.
  • Relationship skills: Good advice takes account of behavioural and emotional factors.
  • Risk management: Why do most people take too little or too much risk?
  • Product knowledge: Researching the market for all the relevant options.
  • Technical skills: Analysing the value for money and projected outcomes.
  • Taxation matters: Identifying tax efficient income strategies.

In the past some advisers and product providers have been guilty of taking a black and white approach to retirement options by pushing clients with smaller funds into annuities and higher-net-worth ones into drawdown.

This approach no longer stands up to critical examination, as it is now less about financial products and more about the wants and needs of individuals.

In practice this may translate into managing competing priorities. For example, it is not unusual for people to want both income certainty and income flexibility, or the option to invest for future growth while at the same time having a safety net in case markets crash. What is more, leaving a spouse or dependant with a secure income may also be an important priority.

In addition to these retirement objectives, advisers and their clients have to grapple with some of the most difficult questions in personal finance.

For instance, when is the optimum time to purchase an annuity? What is a sustainable level of drawdown income? Or what is the most appropriate investment strategy in retirement?

As the debate about robo-advice gathers momentum, advisers can easily differentiate themselves from automated advice processes by showing they have specialist skills that are simply not possible to programme into a robot.

While I cannot offer any easy solutions, I hope I can help advisers develop and improve their skills so they are fully equipped to answer these important questions. In the next article I will look at future trends, including the outlook for annuities and new product development.

Billy Burrows is director of Retirement Intelligence

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