The pensions industry is used to change, but the new pensions freedoms 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.
Consider your business strategy and the operating model that underpins it. What are the potential risks facing your business in the pursuit of your goals and objectives? Work with your senior management team to identify the key risks to your business and devise a strategy to deal with them.
What does risk mean to your business?
Remember, there are various categories of risk which can affect your business, including:
External risks – events that arise outside the business and are beyond your control, including natural events and political changes.
Financial risks – these concern the effective management and control of the business’s finances. They may be influenced by external factors, including falling markets, criminal activity and being overly reliant on a single client segment.
Strategic risks – these concern the long-term strategic objectives of the business. They can be affected by regulatory changes and failure to respond to changing client needs.
Operational risks – these concern the day-to-day issues that the business faces as it tries to achieve its strategic objectives. For example, outdated technology or inconsistent operational and administrative processes and procedures. The new pension freedoms have led to additional operational risks for many adviser firms, including:
Each of these risks has the potential to affect your business at any given time. In fact, it’s likely that several of them have in the past. Before we can mitigate the risk of each, we need to determine how much of a risk each poses to your business. This is where a risk assessment comes in.
Your business may already benefit from having centralised processes to some degree, and if so, you'll know that such processes are a great way to mitigate risk. Centrally agreed processes will not only assist in delivering consistent client outcomes, it is also a more scalable approach meaning it makes your business more efficient as well. Remember it is worth reviewing your processes regularly, particularly during periods of significant change within the industry such as pension freedoms.