Arguably the past decade has made retirement planning seem straightforward. Many clients had defined benefit pension schemes in place, as well as housing wealth to fall back on, while wealth was often generated – and managed – by a single breadwinner. At the same time, financial markets were buoyed by the impact of lower interest rates, which supported the use of drawdown solutions. Returns were strong, and clients were happy.

There was no reason to challenge the existing model of high-touch, face-to-face advice or build more complex and nuanced decumulation strategies. Existing models served clients well.

New challenges

However, the next generation of retirees comes with far greater complexity. Generally their wealth is fragmented: it may be spread across multiple workplace and private pensions, plus ISAs, housing wealth, and inheritances. Would-be retirees may work longer, meaning advisers need to factor in ongoing employment or consultancy income.

Equally, their family set-up may be different. There may be two breadwinners, with separate financial arrangements, but joint liabilities. Family structures may also be more complex, with divorce now more common, adult children living at home, and retirees still supporting elderly relatives.

In the BNY Mellon Investment Management  (BNYM IM) report Life Beyond Work: The changing face of retirement, we found that more than half of advisers expect inheritance and cash-flow planning needs to increase. A significant share of advisers – over 40% – also expect tax planning, long-term care planning, intergenerational planning and housing advice to increase¹. It is clear many advisers recognise that the world is changing.

Financial markets are also likely to be trickier to navigate over the next decade. Interest rates have risen, and inflation is likely to be structurally higher. The deflationary impact of globalisation is waning, and geopolitical tensions are creating volatility in many markets. This makes investment decision-making in retirement more difficult. Annuity rates have risen significantly, but there is also a greater need to protect investor portfolios against inflation. This may expose more rigid drawdown solutions that cannot adapt to a new environment. As such, this may require more imaginative thinking about how to structure investments  in retirement.

Another consideration is the use of technology. High-touch, face-to-face advice is likely to continue to be the gold standard for financial advice. With Consumer Duty coming into play, the role of technology solutions is likely to become more integral to advice propositions. Can harnessing potential efficiency gains help provide clients with value for money? Equally, technology solutions may offer a means to engage with a pipeline of younger clients, which is useful for succession planning and future-proofing an advice business.

Next generation advice

It is against this backdrop, that advisers find their businesses positioned. Our view is that next-generation retirement advice will look very different and will be more complex. Rather than being focused on generating income from investable assets, for example, advisers could spend more time bringing together disparate strands, such as cash-flow planning, care provision, and equity release. The general practitioner may struggle to build the skill base required for all that a client needs.

Instead, advisers may become more like the conductor of an orchestra, using either in-house specialists or partnering with trusted third parties. Rather than attempting to juggle multiple facets of expertise, an adviser’s role is likely to  be to collect and channel that expertise. As one industry expert said in the BNYM IM report: “Retirement planning and long-term care, among others, will likely merge to offer a seamless advisory experience.”

We see three elements necessary to thrive in this new environment. The first is a unified offering. That means successful collaboration between retirement advisers and specialists to provide holistic services. One industry influencer told the BNYM IM report: “Firms that can offer truly holistic guidance will likely pull ahead. I think we’ll see more coordination of things like retirement planning and long-term care to provide unified advice across the customer’s whole retirement journey.”

The second element is cultivating networks for specialist referrals and to deliver access to subject-matter experts. Building this network will bring administrative complexities, such as the allocation of fees, plus challenges on client relationship management and decisions on who to trust.

As a third element, integrating technology with conventional advisory services, is likely to become a key competitive advantage, both to bring about greater efficiency and to handle a pipeline of younger clients. An industry leader, commenting in our research, said Consumer Duty may be the catalyst for advisers to look at technology options in more detail: “(Advisers can) use technology to make advice more affordable through things like automated fact finding and portfolio rebalancing. This will introduce new ways to serve clients that differ from the traditional, high touch in-person approach that’s been the mainstay for decades.”

In all cases, technology should be an adjunct to an advice business – a tool to promote efficiency – rather than a replacement for advice. One adviser said: “I don’t buy the idea that systemising advice with technology degrades its value. In fact, I think it enhances the proposition by making transparent what is actually being delivered – both human and digital elements – at a lower cost.”

Illustrating value

Customised, high-touch advice is important, but it will be not enough on its own. The growing emphasis on value for money – driven by Consumer Duty – could redefine charging models, fuel industry competition, and lead to further consolidation. It will be important for adviser businesses to evolve to reflect these profound shifts in regulation and in the needs of their clients.

As one industry expert concludes: “The cost-intensive, in-person nature of retirement advice in the UK is under scrutiny. Advisers will need to illustrate their value more clearly, especially as the landscape shifts.” With the FCA’s thematic review of retirement advice about to publish its findings, the future of retirement advice is likely to remain in the spotlight for some time to come.

¹Source: 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.