Asset managers
Asset managers, including discretionary fund managers (DFMs), are in a tremendous position to service income drawdown investment strategies.
In the short term, asset managers have made multi-asset income fund solutions available to advisers and clients. There has also been a move towards more outcome-oriented fund and portfolio solutions, with an emphasis on specifically targeted investment returns for clients.
Adviser appetite for outsourcing investment management duties to third parties would appear to be increasing, and the range of managed fund and portfolio solutions has now become an extremely competitive segment of the market.
Asset managers will need to show a better understanding of exactly what is needed to support income drawdown investment strategies. The provision of guarantees and the ability to dampen volatility may appeal to advisers and clients, but complexity, high costs and opacity will not be tolerated.
UK annuity specialists
Annuity specialists have been deep in thought about potential next steps with the development of their proposition. Consumer research exercises continue to identify a general preference for the provision of secure income in retirement, and yet the product term ‘annuity’ apparently has become something of a turn-off.
In the short term, some have sought to make their existing propositions more enduring with added options and flexibility, such as extended guaranteed payment terms and valuation protection options.
We await more fundamental developments in terms of new products and propositions but likely moves might include greater interaction with adviser platforms.
There has been much talk of the emergence of blended retirement income accounts bringing together annuity and income drawdown elements under one roof.
Targeting opportunities to provide secure income solutions internationally, to the US and Australia, for example, where there may be an increasing requirement for annuity-style products, is one avenue to explore. Making use of longevity and underwriting expertise will also provide options.
Offshore life offices
It is too early to tell exactly what the impact of pension freedom will be on offshore life offices in particular, but there may be some nervousness around the future outlook for offshore bond product sales and about polit-ical party references to the potential treatment of non-doms in the run-up to the election.
However, an intermediary distribution sector in the UK that increasingly has tax and intergenerational planning at its heart may well, over time, embrace offshore options more into its mainstream market.
Platform operators
The key target for platform operators has been to accrue assets under management, and so until the pension changes were announced there had been considerably less focus on helping clients to take money off the platform in the form of retirement capital or income.
Platform operators have also been distracted from proposition development work by responding to the weight of regulatory activity in their sector.
The focus has therefore been on the development of their income drawdown proposition and in-house SIPP products. Resources have subsequently been spent on ensuring the pricing framework and functionality of these in-house drawdown products can meet the new requirements.
SIPP operators
This part of the market still sees operators coming to terms with and readying their businesses for the FCA’s forthcoming capital adequacy requirements.
However, with a pre-existing ability to service income drawdown, SIPP operators will at least be positive about the outlook for existing and new business if they are able to make the requisite tweaks and enhancements to their drawdown product and servicing proposition.
Distributors
The post-RDR distribution landscape has continued to evolve and positives should certainly be taken from the fact that we appear to have a more qualified and professional financial planning community. However, one of the emerging and acknowledged problems seems to be that there is a large gap between execution-only business and full financial planning.
This appears to have been brought into sharper focus by the pension freedom changes, but there are some interesting online, technology-based advice propositions emerging to operate in this void. Transactional advice models, as opposed to holistic review-based models, are also being revisited.
M&A activity
Across markets there has been some interesting M&A activity involving a variety of company types, and this looks set to continue during 2015/16. This might occur across various sectors of the market with the heavily populated platform, SIPP and asset management sectors all showing potential signs of contraction. Further consolidation of adviser businesses also continues apace with a number of active acquisition specialists.
2015 and beyond
In terms of the direction of travel, we see that some of the larger groups are now operating with asset management capability, including DFM services, platform functionality and advice propositions within their stable. This points towards emerging vertically integrated business models and propositions.
There would appear to be a continued blurring of the lines between market sectors – and the pension freedom changes have only served to exacerbate this.
It remains a fascinating time to assess strategic responses to the changes now that the initial staging date.
For pension freedom has been and gone. We expect the remainder of 2015 and 2016 to be extremely busy as the new retirement income landscape emerges and as more key players show their hand.
