Good governance and risk management practices can lead to improved client outcomes:
The pensions industry is used to change, but after pension freedoms the risk to the client could be one of the most significant developments for many years. And it is likely that further substantial changes will be seen in the years to come. As we’re sure you’ll have already realised, all of this creates new risks for your business. As you know, risk management is not about eliminating risk. Indeed that would be impossible, as any business must take some risks in order to achieve its objectives. Rather, it is a structured process of facing risks deliberately and systematically, avoiding taking unnecessary ones, and carefully managing those that you decide to take.
While we are sure risk management is something you already address as part of your BAU processes, in light of these changes it might be worth reviewing your business model thoroughly to ensure it is still fit for purpose in this new world and that you are prepared for the future. This module is designed to help you with this review and highlight some of the key points to consider relating to your at-retirement clients. Some of this content will be more or less relevant to you depending on your current processes, but it never hurts to do a quick sense check.
Failing to identify a risk until it is too late can be costly in terms of reputation, security, money and morale. Identifying threats early enables a business to categorise and prioritise risks so that it can then deal with them in a timely and effective way.
Having identified possible risks, a business can then assign the most relevant people to deal with them. (This may be internal staff or external experts, as appropriate.) A strong risk management process will make sure that the risk is then tracked to ensure that it is dealt with properly.
Identifying and dealing with risks can often uncover new opportunities that the firm would not otherwise have noticed. Risk assessments will also encourage the business to explore new ways of doing things and alternative courses of action.
As you would expect, with opportunity comes risk.
Many of today's drawdown clients would previously have used annuities. Without the certainty of a guaranteed income from an annuity or final salary scheme lots of decisions need to be made on what to do with the investment pot - this equals RISK for the client, and RISK for the adviser and firm providing the advice.
It's therefore imperative that your advice process is as robust as possible. Having processes and procedures in place to ensure that the retirement your clients want can be delivered initially and then be sustained over 20 or 30 or more years is substantially different to those that helped them accumulate the capital in the first place. If clients run out of funds part way through their retirement - who will they blame?
By adopting a CIP (or CRP) model for your clients in accumulation and decumulation it can help you: