View more on these topics

Technology will struggle with annuity decision-making

Billy-Burrows-MM-Peach-700.jpg

I was interested to read an article on the Money Marketing website by Ian McKenna recently headlined, ‘Who will crack the tech advice conundrum?’ I added a comment to this blog but for those of you who are not avid readers of MM blogs, I said that although I write my own code and calculators I still struggle to design anything that really helps with decision-making about annuities or drawdown.

It is easy to write good content, explaining options and calculating annuity rates but it is much harder to deal with online advice. Before I go any further, it will be helpful to define what we mean by advice. This is more than a play on words because we all talk about advice but very few people can articulate what it looks like to the client. From a regulatory point of view, advice includes “making a personal recommendation” – ever tried doing that with technology?

From the customer’s point of view, advice can simply mean help. It is possible for customers to think they have recieved advice when the company they have been dealing with has not given advice and does not offer any to customers.

It makes more sense to think about logical decision-making process because that is what most people should be doing. For example, if a customer says: “I want to get my pension income at age 60 but I am concerned about low annuity rates and don’t know what my income requirements or personal circumstances will be in the future,” it seems logical to invest in an annuity or pension drawdown that provides flexibility.

Now technology is good at the logical stuff but what about the non-logical stuff? Let’s not forget most of us are not logical. I remember hearing David Davis MP on Desert Island Discs saying: “Every decision has an analytical part and an emotional part. Get the analytical part and it makes the emotional part easier.”

Most clients are not able or prepared to do the analytical part before their emotions take over. Those familiar with behavioural finance will not be surprised that when faced with an option that pays the highest income now but remains static or an option that pays a lower income but has the potential to pay more in the future, most people go for the highest income option.

One of the advantages of speaking to a retirement income specialist is that they can help clients take a longer-term view of their income requirements. Clearly, technology can help with this, for instance, by modelling the future effects of inflation. 

However, we are back to the problem of how do we help people deal with the emotional side of the annuity or drawdown decision?

I describe many of many clients as being like windscreen wipers. On the one hand I think I will just invest in a guaranteed annuity. On the other hand maybe I should have some flexibility after all.

Personally, I think annuity and drawdown decisions will be one of the last bastions for personal contact in financial services. This does not have to be face to face because telephone will do, but I do not think this can be done online.

I have some good ideas for an online retirement windscreen wiper. Anybody want to help me develop it?

Billy Burrows is director at The Retirement Academy 

Recommended

Business-People-Silhouette-Leaving-Walking-700x450.jpg

L&G structured products head made redundant after sales decline

Legal & General has made its head of structured solutions James Harrington redundant after conducting a review of structured product sales. Harrington’s responsibilities will be absorbed by the rest of L&G’s structured products team. He has worked for L&G in a number of roles for the past 15 years. His responsibilities will largely fall to head […]

House-Market-Mortgage-Property-700.png

Lenders are caught between unrealistic borrower expectation and tighter regulation

Since the global financial crash in 2008 the economic, political and social climate of the UK has changed dramatically. The financial crisis has changed the face of banking, bringing increased regulation and better customer understanding of the financial environment. In addition to widely expressed negative views of banks from the public, politicians and press, attributing […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

There are 2 comments at the moment, we would love to hear your opinion too.

  1. I would tend to agree Billy. Although the annuity contract and its options are fairly straight forward the decision making process is far from straight forward and the emotion of ‘I want the most income…’ can detract from the more logical ‘What are the best options…’. However, when you have a small fund, the scope of choosing the best options does somewhat disappear under the need for the most income.

    In this situation non-advised, guided, automated…whatever you want to call it does serve that market pretty well. For the more complex cases I think technology can only help serve the adviser to be more efficient and a better communicator to deliver that personal advice (and I mean that from a regulated definition).

    The regulator has created the simplified advice regulations that does allow that combination of a ‘personal recommendation’ with the scope for systemic automation, but the killer will be in the delivery. I don’t see anyone doing it yet, but personally I think it can be done and someone will crack it soon.

    Could this be the start of the automated retirement advice space race?

  2. I a agree with you Billy. What I would lime to see is a higher trivial pension limit of 3x the lifetime allowance or somewhere I. the region of £40k. The taxman would still get his pound of flesh and it would be worth getting advice on most pots on over £40k. Anything less than that and an advice fee and risk to the adviser is hard to justify or accept. We do add value, but we come at a price.

Leave a comment

Close

Why register with Money Marketing ?

Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

News & analysis delivered directly to your inbox
Register today to receive our range of news alerts including daily and weekly briefings

Money Marketing Events
Be the first to hear about our industry leading conferences, awards, roundtables and more.

Research and insight
Take part in and see the results of Money Marketing's flagship investigations into industry trends.

Have your say
Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

Register now

Having problems?

Contact us on +44 (0)20 7292 3712

Lines are open Monday to Friday 9:00am -5.00pm

Email: customerservices@moneymarketing.com