According to independent financial research company Defaqto, the uptake of drawdown products by baby boomers reaching retirement will continue to fuel growth in the self-invested personal pension (SIPP) market1 for several years to come.
This area of retirement planning therefore presents a real opportunity for advisers.
Defaqto's Guide to Drawdown, published today, emphasises that a person's decision to start taking benefits from a pension fund will tend to come at the point when they have accumulated the greatest net worth. When they stop working, or move to part-time work, their capacity to recover from losses is significantly reduced, as is their tolerance of service failures by providers.
For advisers, although drawdown offers significant potential for servicing clients' retirement needs, performing robust due diligence when selecting the most suitable drawdown provider partner is crucial to maintaining long-term client relationships. The competitive and dynamic nature of the SIPP industry demands not only initial due diligence in selecting the right partner(s) but also recurring reviews of those chosen in order to deliver ongoing client satisfaction.
The guide highlights the key areas of due diligence that advisers should undertake to identify drawdown partners that meet the needs of their clients, including:
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Assessing a provider's financial strength
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Determining the provider's experience and track record in the drawdown market
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Reviewing the availability and scope of illustrations
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Assessing the availability of online data, which would give intermediaries instant access to the more comprehensive information they will need when advising on drawdown
Andy Leggett, Defaqto's Insight Analyst for Wealth Management, said:
"The proportion of SIPPs in drawdown could be as much as one-fifth to one-quarter of the total number of plans - and the FSA's data also shows that SIPPs sales are growing at a rapid rate. These elements taken together show that drawdown offers real potential to advisers, and this market is almost certain to grow further as more baby boomers reach retirement.
"In choosing the right drawdown proposition, advisers will want to think about which providers match well with their own business models as well as conducting due diligence and considering which will endure. Advisers will also need to consider the specific drawdown needs of their clients and continue to monitor the products they select for them. Advisers will need a comprehensive set of probing questions to ensure the process goes well beyond size, brand and reputation. They need to unearth whether a provider's business model, administration, systems and service can be trusted and are sustainable."
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