Our friends over at Ascentric recently carried out some extensive research in this area and found that adviser centralised retirement proposition (CRP) usage is expected to swell over the next year, rising from 48% now to 71% in 2021, which is a substantial upswing.
To date, adviser interest in adopting a CRP approach has been much more muted than the rapid take up of centralised investment proposition (CIPs) that we saw post Retail Distribution Review. Part of the issue may stem from confusion with terminology. The first feature in this series highlighted that many adviser firms may actually be operating robust CRP approaches without actually realising it. Regardless, it’s not surprising to see CRPs moving more sharply into advisers’ focus as the regulatory scrutiny on drawdown advice increases.
The FCA detailed in their business plan for 2020-21 that the suitability of drawdown advice remains one of its key priorities. Furthermore, their ‘Dear CEO’ letter towards the end of January 2020 highlighted this concern around the suitability of advice and that they essentially want retirement consumers to have access to ‘high quality advice and support’.
‘High quality advice and support’ happens to be a bread and butter service that many of the adviser firms that I’ve met provide to all of their clients, not just retirement clients but there is also this inter-connected issue of PROD which requires advisers to tailor their investment solutions and products to meet the needs of target markets.
Helping your clients better understand the risks
Regardless of whether a firm is using a CIP, a CRP or any other acronym someone wants to conjure up, it’s been great to see so many different firms evolve and adapt their processes for drawdown clients to help manage all of those inter-related risks and challenges in retirement. This can help you understand more about how different investments will perform in different scenarios whilst ensuring your clients have a better understanding of the risks they face in retirement. It also helps paint a clearer picture to your clients about how you are managing these risks for them and striving for stronger client outcomes.
As I highlighted in the previous piece, a CRP approach is about much more than just the investment solution being used. It’s about the retirement product, the use of planning tools to help you mitigate issues like sequencing risk, volatility drag and income sustainability and it’s about ultimately having a robust framework in place to support your conversations with your retirement clients, set expectations and review their plan against these expectations. As the popularity in drawdown continues to soar and the regulatory focus continues to gather momentum, it’s hard not to see adviser CRP adoption increasing further. And that can only be a good thing.
In the final instalment of this series, I take a look at some of the investment challenges that Covid-19 has thrown at the CRP landscape.