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The final countdown

Certain industry voices seem to suggest it is hard for small IFAs whose clients have moderate retirement pots to make a decent profit through retirement planning advice but they are mistaken. Take this imaginary case study as an example:

John, 52, owns a successful IFA business. The majority of clients have been with him for over 10 years and he takes a mixture of fees and commission.

He recently attended The Changing Face of the At-Retirement Market conference. Data was presented showing the value of the market was forecast to double by 2012 and how advisers were not taking advantage.

Curious, John contacted the account director at one of the new breed of providers, who explained that he had been helping practices to change their approach to retirement income planning and there were over 10 retirement income choices available to a client.

He said too many clients were being placed into retirement income products where no changes could be made once the decision to buy had been taken. He said on average a client’s health was likely to change in the first 10 years of retirement and how, for example, the client’s partner pre-deceasing them could give rise to both a change in the shape and enhanced value of retirement income.

This alarmed John. His typical client had pension savings of £10k-£100k and he always recommended lifetime annuities. John was clear how his clients could benefit but how would this increase his income? The account director pointed out that when John placed his client into a lifetime annuity, he typically received 1 per cent-1.25 per cent commission. No further advice is then provided to the client on their retirement fund because no changes can be made. However, if John continues to advise the client up to the point where the final retirement income choice has to be made, he can legitimately charge for these services either directly from the client or from the provider.

Keeping his clients’ options open by deferring their ultimate retirement income choice provides enhanced flexibility to respond to future changing circumstances, with advice at three to five-year intervals.

The same client could generate two, three or four times as much income depending upon the nature of the advice and product choices made in the future. Much of this will come from the ability of the new low-cost solution providers to share more of the profit available within the products with the IFA and the client and not retain as much profit as some of the traditional manufacturers.

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