More clients are in drawdown than ever before thanks to pension freedoms.
But as anyone involved in our industry knows, the requirements of most clients in drawdown are rarely straightforward.
Clients use drawdown in a wide range of ways, from supplementing other sources of income, such as a DB pension or rental, to using their drawdown pot as a bridging pension. There are also those clients whose drawdown pot is their main source of income but who want to vary how much they take and when.
It’s why it’s so important that platforms can reflect the fact that the needs of clients in drawdown are fundamentally different to those in accumulation.
Our Drawdown Price Lock can help make a difference
Platforms may not be able to provide clients in drawdown with free guarantees, but they can be coming up with solutions to better support advisers with clients in drawdown for good outcomes.
For our part, we’re continually anticipating the issues clients may face in the future, building in that flexibility to Standard Life Wrap, using technology innovation where we can.
It’s one of the reasons we introduced the Drawdown Price Lock on our Wrap platform earlier this year.
It’s a simple idea but it recognises that the difference between those clients who are saving and those clients who are drawing an income cuts through every part of financial services. Our industry is not just about income and investments and this needs to be reflected in a new design for every part of the process.
Offering the ability to ‘lock in’ the fee drawdown clients pay
Earlier this year, we made a decision to review pricing on Wrap. As part of the review, we considered the entire financial journey as clients draw down their assets and the impact pricing could have on other parts of it.
Most platforms, including Wrap, have traditionally operated a pricing model designed to reward savers where fees fall as the client’s pot increases. At drawdown, however, that design switches from being a benefit to a problem. As money is withdrawn, the percentage rises, creating an increasing drag as the client’s pot declines.
This creates issues way beyond just pricing. It impacts various adviser processes as suitability of the client solution can change over time, creating potential headaches for advisers and clients when the price increases.
This was never our intent and we’ve addressed it by introducing the Drawdown Price Lock.
Advisers can prevent future headaches by ‘locking in’ the SIPP percentage fee their clients pay when their rate is at its lowest. It means clients benefit from lower fees throughout drawdown, not just at the start. But most importantly, it keeps things simple and avoids nasty surprises.
Certainly, circumstances change so advisers have the flexibility to apply and reset the Drawdown Price Lock once in a 12-month period for each eligible client and it can be removed at any time.
Helping you assess the suitability of the Drawdown Price Lock
To help you assess the suitability of the Drawdown Price Lock for different client scenarios, take a look at these illustrative case studies.
Of course, a key part of advice in drawdown is around the sustainability of clients’ savings pots. If advisers can lock in the best drawdown charge for at-retirement clients on Wrap, it helps to reassure them and de-risk their position over the long-term.
One of the driving forces behind the design of the Drawdown Price Lock was because clients in drawdown are looking for that reassurance.
The pandemic has only brought those concerns to the surface.
We also recognise the Drawdown Price Lock isn’t suitable for everyone as some clients could be taking very small withdrawals that are unlikely to reduce their assets.
We know advisers are choosing to discuss the suitability of applying the Drawdown Price Lock when they’re carrying out client reviews. A client review currently includes a review on sustainability of income so the client should be able to easily understand whether having this feature is of value in their current circumstances.
Applying the Drawdown Price Lock is an option for the right client at the right time.
Helping advisers build long-term, valuable relationships
The Drawdown Price Lock is just one innovation we’ve introduced on Wrap and it’s an example of how platforms can use technology to support advisers with clients in drawdown, to help make a difference and for better outcomes.
Perhaps more importantly, the Drawdown Price Lock also gives advisers the opportunity to continue to build long-term and valuable relationships with clients in these challenging times, offering clients some peace of mind.
With more clients in drawdown than ever before thanks to pension freedoms, it’s probably never been more necessary for platforms to be looking for solutions that give clients that reassurance and confidence.
Speak to your usual Standard Life contact for more details about Wrap’s Drawdown Price Lock or take a look here
The value of investments can go down as well as up, and could be worth less than originally invested.
The views expressed in this blog should not be regarded as financial advice.