Few deny that demand for advice in retirement outstrips advisers’ ability to supply it. This ‘advice gap’ is a significant headache for policymakers, who need to ensure that people’s retirement outcomes aren’t compromised by poor, ill-informed decision-making. But what role do advisers have in solving this problem?

Part of the challenge for regulators is that most advisers have a full client bank, and a strong pipeline. While many advisers would love to help those who need advice but cannot access it, there is no commercial incentive to do so. Equally, the regulatory parameters placed around advice currently make it difficult to offer simplified pathways for less wealthy customers. 

It is a problem that is likely to become more pressing. The population aged 65 and over is projected to grow by 10% in the next five years.¹ Auto-enrolment has brought an additional 10.9m people into workplace savings since 2012.² As one industry expert says: “With more people retiring and the bulk of assets in defined contribution schemes, advice needs will explode.”³

Despite the obstacles, some advisers have succeeded in building these pathways, whether to help with the adviser gap or to create a pipeline of younger clients. Around 40% of advice firms have a specific proposition for low value clients and one-third of people paying for advice have less than £50,000. ⁴ Increasingly, there are the technology solutions available to enable advisers to engage with lower wealth clients and it can be a win/win in terms of taking steps to solve the advice gap, and future-proofing an advice business. 

Regulatory efforts

The new advice guidance boundary review paper from the FCA⁵  outlines a number of proposals to fill the advice gap, which – if implemented – could have an impact on the way advisers approach this part of the market. It suggests three potential options: the first is simply for the regulator to clarify the boundary between guidance and advice to encourage providers to go further with guidance. While this may help, firms will inevitably be wary of straying into advice and so the regulator may need to provide more explicit direction of what support should be provided and when.  

A second option looks at a simplified advice regime. This new regulatory framework would enable firms to use limited information to suggest products or courses of action, taking into account only the relevant information about a specific consumer need. Advisers may be able to play a role here if the structure allows them to deliver this advice at a suitable price point. However, it seems unlikely that simplified advice will extend too far into supporting retirement income clients. The economics of this are also challenging and it may be more useful for product providers rather than established advice firms.

Perhaps most interesting would be ‘targeted support’. Fund groups, product providers, and platforms could give people generic advice by referencing people similar to them. A little like the online shopping approach of ‘if you like this, you might like this’, the investor would be taken through a process. The result would be a suggestion, such as “you are currently withdrawing 8% per year, people like you tend to withdraw at a rate of 4%,” or, “if you’re investing in an ISA, people like you tend to look for a balanced multi-asset fund.” 

This ‘targeted support’ has pros and cons for advisers. In theory, it could nibble away at advisers’ businesses by scooping up the more straightforward clients. The proposals envisage those looking for guidance on drawdown withdrawal rate or retirement choices could be serviced using this approach. In reality, most retirement advice clients will have more complex needs and targeted support will not be able to deliver the holistic planning that advisers can offer.

More optimistically, targeted support may create another pathway to full advice. By showing retirees that their needs are perhaps more complex than targeted support can manage, it could, over time, increase the amount of people willing to seek and pay for full advice. 

Breadth of retirement planning

While these simplified approaches will never replace full advice, they may mean advisers need to think harder about the retirement proposition they are offering to their clients. Where retirement advice is limited to putting money in a multi-asset fund and taking out 4% each year, clients will quickly find they can get this simple, transactional advice elsewhere at no cost. The value of great retirement advice will continue to come from delivering and managing a holistic retirement plan.

In our report, Life Beyond Work: The changing face of retirement, we discuss the need for advisers to ensure they have the skills for the next generation of financial advice, which is likely to be more complex. The average advised client is 59⁶ , and the number of clients with the magic combination of defined benefit pension schemes and considerable housing wealth is diminishing. The next generation has more fragmented wealth – across multiple pensions, housing wealth, and even ongoing income from employment or consultancy.  

As one industry expert says: “Advisers need to consider income sources and expenses holistically across evolving family units. You now have more fractured careers with people moving jobs more often so they end up with multiple pension pots. The household is potentially two incomes, two individuals, with independent wealth to help them with retirement.”⁷

Advisers will need to look at whether they have the appropriate platform, investment strategy and technology tools to meet clients’ shifting needs. They will need to build robust, flexible investment propositions for retirement across product selection and portfolios that can meet the complex needs of the next generation of retirees. Building the breadth of skills necessary for a full-service retirement proposition will not be easy and advisers are likely to need robust outsourcing arrangements to bring in expertise where they don’t have it in-house. 

As the report shows, many of the challenges facing the advice industry have a single solution: a strong and nuanced retirement proposition. This will help ensure differentiation from any simplified solutions put in place to address the advice gap, but will also help tackle the greater complexity inherent in the next generation of clients. 

¹ Source: The State of Health and Care of Older People, 2023, https://www.ageuk.org.uk/globalassets/age-uk/documents/reports-and-publications/reports-and-briefings/health--wellbeing/age-uk-briefing-state-of-health-and-care-july-2023-abridged-version.pdf 

²  Source: Pensions (Extension of Automatic Enrolment) (No. 2) Bill Volume 831: debated on Friday 14 July 2023 https://hansard.parliament.uk/lords/2023-07-14/debates/7D1101C2-71FE-46B4-84E7-E3AC318A0A5F/Pensions(ExtensionOfAutomaticEnrolment)(No2)Bill 3

³  Source: Life Beyond Work: The Changing Face of Retirement, published November 2023. Research conducted by NMG Consulting for BNY Mellon Investment Management between June and July 2023, which included 64 in depth interviews with consumers, retirement specialists and industry influencers and an online survey with 202 retirement-focused financial advisers.

⁴  Source: The Lang Cat, The Advice Gap Report 2023, published 19 May 2023. https://www.flipsnack.com/langcat/the-advice-gap-report-2023.html

⁵  Source: Advice Guidance Boundary Review – proposals for closing the advice gap, December 2023, https://www.fca.org.uk/publication/discussion/dp23-5.pdf  

⁶  Source: Tackling The Advice Gap: One Solution At A Time, May 2023, https://thelangcat.co.uk/tackling-the-advice-gap-one-solution-at-a-time/

⁷  Source: Life Beyond Work: The Changing Face of Retirement, published November 2023. Research conducted by NMG Consulting for BNY Mellon Investment Management between June and July 2023, which included 64 in depth interviews with consumers, retirement specialists and industry influencers and an online survey with 202 retirement-focused financial advisers.