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Standard in the vanguard

In November 2002, Standard Life quietly started something of a revolution in the financial services market when it became the first UK life office to give free access to stochastic modelling tools. This started a trend that has seen increasing numbers of firms put such tools at the heart of their advice process.

The tools launched in 2002 are long overdue for an overhaul and have been surpassed by many far more advanced alternatives, not least the equivalent tools included in Standard Life’s wrap platform, but I understand that they are still some of the most widely used tools by adviser firms. This delivers an important message about the benefits of being the first mover in such situations.

I was recently given access to a new retirement planning tool which the company will be making available to advisers in the near future. Standard Life must be hoping that again being first to market with an at-retirement planning tool will help it achieve a similar advantage in this market sector. From what I have seen, there are good reasons why it should do.

The service is designed to help advisers with an evolved advice process that takes into account an increasingly wide range of products that can be used to meet retirement needs. It is intended to look at a consumer’s holistic financial situation and includes support for an ongoing advice and review process. The service can be used for clients of any age but it is particularly suitable for those who are 40 or more, especially those at or after retirement.

Using a process that is very similar to the way that a fact-find is completed, the adviser enters the client details. A paper-version data capture form is available to pull together information if the adviser does not want to enter data in front of the client. Each report is specific for an individual but can include their partner’s details.

As part of the process, information is captured about income from a variety of sources which may include employment, state pensions, a range of pension contracts, savings, investments, property and any other income.

Details of the level of regular income and any one-off amounts that will be needed by the client over a range of periods are entered to build an overall picture of their cash flow.

When identifying a client’s income needs, the adviser can set requirements up to age 75. This recognises that beyond this age, the client will need to revert to annuities or alternatively secured pensions for their retirement income.

Personally, I think there is an argument for looking beyond this date and considering the ongoing use of savings products. This might be an area for Standard Life to explore in the future. Beyond this age, the service does look at what assets will remain and what they will be invested in, as well as other assets.

The client’s attitude to risk is captured by selecting one of the values identified using Standard Life’s tool or the adviser can define their own asset mix for the client.

Client priorities are then identified choosing between maximising income later in retirement, minimising income tax in the early years or maximising death benefits in retirement.

A report is generated at this point to show a client’s likely income in retirement and level of expenditure. Advisers can create recommended actions to address shortfalls which are presented as action plans. There is no limit on the number of scenarios that can be modelled.

A detailed internal report for adviser records can be generated to summarise all information captured and the different scenarios modelled, along with a client report with scenarios. These are provided as unbranded Microsoft Word documents. A report does need to be generated for each scenario modelled as the system will currently only retain details of the option the client decides to proceed with.

Personally, this an area I think Standard Life could improve on. It might not be practical to hold all scenarios indefinitely but as the advice process may take place over a number of weeks, it would be useful if they could be held, say, for three months to avoid having to recreate them.

The system allows advisers to set review dates with a default of one year’s time. The service will not initially generate reminders although I would have thought that email-based prompts to advisers on when these dates are approaching should be easy to accommodate.

When recalling a case for review, the system brings up all sources of income populated previously and enables advisers to modify the amount of these incomes. The system can then be used to review a client’s circumstances and take whatever action is thought to be necessary.

Again, a report can be generated to show last year’s action plan and the new one agreed if any further action is necessary.

Planning tools of this type have historically been the preserve of client management and financial planning software systems from specialist software suppliers. Much of what is included here actually goes beyond what many such systems can offer.

Axa and Friends Provident do offer versions of the Distribution Technology financial planning software to advisers but this is the first time that I have seen a life office build such a detailed tool for advisers.

This is an excellent example of how a product provider can offer valuable planning tools to advisers to help them evolve their services and move towards an ongoing service-driven model. Standard Life deserves considerable credit for this.

Given that a recent study by True Potential identified that 43 per cent of adviser firms do not have a dedicated client management system and that not all such systems include planning tools anyway, this service offers a real opportunity for many firms to advance their client-serving proposition.

That such tools are now available to the adviser free of charge also raises questions over what it is reasonable to expect advisers to pay for their software. And do many of the existing suppliers need to up their game?

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