"Advisers face a significant challenge: how to demonstrate and evidence that their recommendations on these two components – guaranteed income and the remaining portfolio – are both suitable independently and optimally aligned together."
- Head of behavioural finance at Oxford Risk, Dr Greg B Davies
Increasing regulatory scrutiny of retirement advice in the wake of last year’s thematic review by the FCA has left advisers grappling with how best to demonstrate and evidence suitability.
Behavioural finance specialists, Oxford Risk, says many firms in the financial advice industry are struggling to meet the FCA's stricter requirements, particularly in areas like information collection, suitability assessments, and disclosures.
It cites the growing popularity of guaranteed income products as just one example of how retirement income planning is changing and consequently how advisers must adapt.
Annuity sales rose by 39% to 82,000 individual contracts sold in 2023/24, the highest since before the pension freedom reforms in 2015. The £6 billion invested in annuities was more than 49% higher than the previous year.
To address these challenges, Oxford Risk has introduced a new retirement income suitability software solution.
Designed to support financial advisers, the tool provides a clear methodology for addressing key questions, such as 'how much guaranteed income should be purchased?' and 'what level of risk should be taken with the remaining pot of invested assets?'.
Just Group is feeding live data into the new tool developed by Oxford Risk, providing up to date intelligence on health, mortality and product pricing – enabling advisers to get accurate insight from the Oxford Risk solution on the level of secure lifetime income (SLI) to provide for their clients, taking into account the client’s personal circumstances.
Head of behavioural finance at Oxford Risk, Dr Greg B Davies, commented: “A common strategy for advised clients entering retirement is to allocate part of their pension pot to provide a guaranteed income for life, while keeping the remaining portion invested to allow flexible withdrawals. This approach not only reduces sequencing risk but can also enhance the investor’s capacity for risk-taking with their remaining investible assets.
"However, financial advisers face a significant challenge: how to demonstrate and evidence that their recommendations on these two components – guaranteed income and the remaining portfolio – are both suitable independently and optimally aligned together."
Stuart Slegg, head of retail investment solutions at Just Group, said: “We’re very pleased to continue our work with Oxford Risk to support advisers achieve better outcomes for their clients in-retirement. The challenges faced by clients in-retirement are different to those accumulating wealth, so it’s important advisers can evidence how the solution they recommend meets their clients’ individual objectives. There’s a growing body of evidence that shows how including a proportion of secure lifetime income within a drawdown portfolio can enhance client outcomes. How much secure lifetime income to purchase for a client and how to adjust the remaining investments in the portfolio is a question that Oxford Risk have been working hard to solve. Its unique methodology provides advisers with a solution to this important question.”
