Pensions and the future - certainties and uncertanies

Change has rapidly become the norm in this sector and the industry is quickly having to adapt as a result.

For example, automatic enrolment has resulted in 9.5 million people being auto-enrolled and figures show that 73% of UK employees had an active workplace pension scheme in 2017, up from less than 47% in 2012.  We’re also about to see more change here with minimum contributions increasing to 8% from 6 April 2019, and pension freedoms continues to change the way people access their money at retirement with £23.5 billion accessed since April 2015.

But these are not the only factors that are causing ripples. The sector is also feeling the effect from other areas such as changes in technology. From digital communications to automated advice, many advice firms have been enhanced by new technologies. This is partly being driven by demand from customers who now use tech in their daily lives - from booking a taxi through an app, to paying a cheque in using their phone’s camera. Indeed a recent study of 1,200 UK consumers  found younger generational groups, in particular millennials, are substantially more open to automated financial advice and investment management when compared to more mature age groups.

We’re also seeing a major shift in the pensions landscape, with the continued decline of defined benefit schemes and the consultation into collective defined contribution schemes, and experiencing wider regulation that is affecting the whole financial ecosystem. Take Open Banking and PSD2; designed to allow approved third parties to access financial information, it has the power to revolutionise retirement and pension planning tools. Such regulation can be viewed as a threat or an opportunity and those with foresight will already be capitalising on the opportunity.

Combined, all of these factors are a powerful catalyst for innovation in the pensions and advice sector. So what does the future hold?  Based on known factors, and hints of what might be coming down the line, we envisage the following:

1. Artificial intelligence

If you think fully regulated automated advice was already sophisticated, then hot on the heels comes the impact of AI. For example, the Wealth Wizards AI Guild is currently working on the next generation of advice powered by our AI capability that provides access to faster cutting-edge automated advice for the advisory sector. The guild’s development work includes state-of-the art features such as voice, chat, emotive bots and computer vision capabilities that could be a reality in the near future. The beauty of AI is that it will not only help with customer service, but will also help the firm and adviser with essential compliance activities.

2. More and more people seeking support

As a result of auto-enrolment, pension freedoms and the pensions dashboard, plus the availability of fully-regulated automated advice, we believe more people will be enticed to seek out professional advice.  And of course, we expect an increase in demand from the stampede of Baby Boomers due to retire over the next few years – followed by Generation Y and the huge swathe of Millennials and Generation Z. The only way firms will be able to cope is to adapt models, fee structures and seek support from automation.  

3. A new kind of relationship

There’s no doubt that, as advisers become more supported by automated solutions, the client-adviser relationship will change. The adviser will be freed from the heavy lifting to spend more time with the client to better understand their needs. In this way, competitive advantage for advice firms will depend on the adviser-client interaction and empathy, as much as the superior quality of the advice itself.

4. Human augmentation

The greatest fear amongst advisers is that automated advice will replace advisers. However, this has been largely dismissed by experts. At Wealth Wizards, we believe the future lies firmly in the augmented adviser, and Altus research (One Poll, Q4) clearly demonstrates that customers want to be able to contact a human via phone or webchat either during or after they have made the decision to invest in a digital adviser – important to 80% of customers.  The hybrid advice model will deliver efficiencies through the automation of repetitive admin tasks and report writing; from paraplanning through to generating complex advice plans.

5. New collaborations

The pace of technological change, and the constantly shifting landscape requires firms to be innovative trailblazers in their field. We are already seeing how open banking is leading to new fintech operations in the banking sector that are gaining ground and threatening the traditional banking model. In the same way, fintech organisations threaten the traditional pension sector. Therefore, being able to quickly obtain new expertise and offer new quality products and solutions in the future may depend on partnerships and collaborations. In this way, agile new fintech businesses can work alongside traditional firms to provide solutions that the new generation of advice clients are looking for.

In summary, the advice business of the future will be a leaner, fitter operation servicing more clients while delivering quality, professional advice. More than likely, firms will be partnering with fintech groups that can deliver the expertise that is too expensive or complex to be developed rapidly in-house.  Advisers will remain skilled relationship handlers, relying on regulated, automated support solutions, to create intuitive advice, generated via state-of-the-art software and underpinned by AI.

We also predict that advice will no longer be static and will evolve on a continual basis, thanks to sophisticated algorithms that will process open data feeds from a myriad of sources. Imagine a constantly-monitored, holistic journey covering everything from financial priority planning, pensions and retirement, savings, mortgages, protection, defined benefit transfers, equity release and others. The adviser will be able to review goals, circumstances and external forces and adjust advice accordingly thanks to open data and automation.

In many ways the advice of the future is going to be unlike the advice of today, yet we believe it will continue to be the case that the advisers that succeed, will be the ones that deliver high quality advice and truly put their clients first.