What is in store for advisers and retirement planning this year?

Some things never change. Retirement planning, as it has done since the dawn of the financial advice profession, will top many clients’ priority lists in 2023.

So, what is the current state of play? In today’s economic environment, is guaranteed income proving a draw with advisers and clients? And what effect is market conditions having on firms’ investment strategies for client income?

We have some answers to these questions in our latest State of the Adviser Nation (SOTAN) report, our biggest annual study by some considerable distance and, for 2023, built on insights shared by a record 602 advice businesses (thank you, again, if that included you).

The cost-of-living effect

Before we get into it, it’s worth touching on the cost-of-living crisis and the effect this is having on advisers’ dealings with clients.

According to SOTAN, more than a third of firms said the economic climate will change, or is changing, the way they manage essential costs for clients. Meanwhile, more than half (52%) of advisers agreed the cost-of-living crisis had directly resulted in clients coming to them for reassurance. A similar proportion (54%) indicated it had prompted them to proactively contact clients to offer support. Though this translates into extra resource in an already time-pressured profession, it once again illustrates adviser preparedness to reassure clients and showcase the tremendous value of professional advice.

Against this backdrop, what might be the knock-on effect to retirement advice this year?

A guaranteed income

We expect annuities to form a larger part of retirement solutions for clients this year and beyond – and the reasons are simple.

• Annuity income has been on the low side in recent years. Between 2016 and 2022, annual income floated between around £4,700 and £5,600, reaching an all-time low £4,696 in August 2016 (based on £100,000, aged 65, on a single life, level and no guaranteed period).
• But 2022 was different. Rates rose around 40% and per-annum income reached £7,144 on 1 December 2022, based on the same benchmark. Add to that the security offered by annuities in uncertain markets and, somewhat suddenly, annuities are competitive again.

So, what have advisers been sharing with us as part of SOTAN? Well, almost two-thirds of advisers (65%) agreed that annuities are a more attractive option now than they were six months ago. Meanwhile, an even higher proportion (69%) indicated that, in the current economic environment, a product that provides an element of guaranteed income in retirement must be considered. Almost a fifth (19%) strongly agreed with this point. It may be that conditions are right for other ‘guaranteed’ products to come to the fore too.

Investment strategies for income

One of the deeper insights we have gleaned as part of SOTAN over the years is that we believe no two firms are exactly alike.

While this has its drawbacks – our SOTAN analysis would be a lot more straightforward for starters – it also suggests something quite wonderful: financial advice has never been and never will be an off-the-shelf service, and there are many, many ways to provide it. It means advisers across the land are tailoring their offering, working to their strengths, and showcasing their expertise in unique ways.

Our research suggests that variety among advisers also applies to investment strategies for client income.

We asked firms to select all the strategies that they use, across seven possibilities:

1. Segregating short-term income needs in cash;
2. Safe withdrawal rate theory;
3. Securing basic income needs via guarantee;
4. Taking natural yield via income generating assets;
5. Fulfilling multiple client goals via a multi-goal or multi-wrapper ‘bucketing’ strategy;
6. Recommending an annuity for certain risk averse clients;
7. A total return long-term buy-and-hold strategy

More than 60% of advisers use at least three investment strategies for client income, with a fifth (20%) overall using at least five. Smaller pockets use all seven. A quarter of advisers indicated they adopt a single strategy.

When it comes to implementing the financial plan, the vast majority (76%) are holding short-term income in cash, which naturally brings platform cash accounts – and the interest that is earned on them – under the spotlight. With rates on the rise, this could become a point of competition between platforms.

In conclusion

Context has rarely been more important when considering the shape of retirement advice in 2023. The cost-of-living crisis affects advisers’ clients, but it affects advisers too, and everyone who works within advice businesses.

However – and this cannot be repeated often enough – the next 24 months are likely to present another opportunity to demonstrate the value of advice. Advisers are already working alongside clients to help them adjust their plans if necessary and to reassure them if not. When it comes to retirement, that is exactly what clients need.