The outbreak of coronavirus has rocked the world of financial advice, forcing professionals to adopt new ways of working and overcome the challenges posed by both worldwide lockdowns and market volatility.
According to Schroders’ latest UK financial adviser survey, the majority of advisers (95%) are certain the pandemic will result in a major global recession.
But 66% believe the current fiscal and monetary policies implemented by governments across the globe are going to mitigate the impact.
Nine in 10 (89%) advisers also believe the current situation will create “good buying opportunities”.
Every professional surveyed said their clients have been understanding about the impact coronavirus has had on their investments.
Their portfolios have continued to perform despite the volatility, but customers are still worried.
The three major sources of concern, according to Schroders, are capital loss (91%), impact on retirement plans (85%) and investment income loss (64%).
This chimes with a study conducted by investment platform AJ Bell which discovered that 11% of Brits aged 55+ have accessed or intend to access their pension pots to deal with the impact of covid-19.
Change of plans
As a result of the economic fallout, many clients have been forced to rethink their financial plans for when they stop working.
Nearly half (49%) of advisers reported that they have had clients delaying their retirement date because of concerns about reduced capital or income due to the pandemic.
Just 5% of those surveyed said they had clients who brought forward their retirement date.
Despite the changes in retirement attitudes and subsequent plans and advice, the vast majority of planners in the UK believe that there will still be appetite for drawdown solutions post-crisis.
Most (73%) think the demand will remain unchanged, 12% believe it will increase, while only 14% expect it to fall.
Doug Abbott, head of UK intermediary at Schroders, said: “Whilst the long-term consequences of the current economic recession have yet to be fully understood, the covid-19 pandemic has already brought about some profound changes to the investment community.
“Capital preservation becomes understandably a key priority for investors who now favour an intensified mode of interaction with advisers along with a more active style of investing.
“The actual impact of the pandemic on investor sentiment remains, however, surprisingly mild according to our survey even if retirement plans for half of advisers’ clients seem delayed for now,” he added.
Drawdown vs annuity
Andrew Tully, technical director at Canada Life, agrees that drawdown will see a massive increase post-pandemic.
He told International Adviser: “I think longer-term drawdown will continue to be the biggest product. But I think we will see more people in the short-term looking towards annuities.
“I think that where there have been volatile markets, people will look for a bit more certainty, whether that is investing in less risky assets or buying an annuity.
“People might look for some sort of certainty over the next year or two. I think we will see increases in annuity sales over the next couple of years. But I still would imagine drawdown will be, by far, the biggest product,“ he added.
Tully said that the flexibility that drawdown can give to retirees will be the most attractive feature going forward.
“The ability to move your income up and down as you go through retirement is hugely beneficial, and drawdown allows that much easier than annuities,” he continued.
“Traditional annuities doesn’t really give you that option; they weren’t particularly beneficial from a death benefit perspective.
“People like idea of drawdown because if money is not used at the end of the day then that passes on to the children or grandchildren.”
Philosophical shift
Gillian Hepburn, intermediary solutions director at Schroders, also thinks there could be a rally towards annuities and other retirement products as there are many more options available.
But the main issue for advisers is going to be mitigating their client’s need to enter drawdown for short-term cash, while at the same time keeping the conversation and planning for the long-term going.
That is why Hepburn believes there will be a shift from retirement ‘solutions’ to a retirement ‘process’ because there isn’t a single solution.
She added that it’s about the process and proposition that take into consideration longevity, pension pot income as well as any other investments or sources of income clients may have.
Schroders’ survey was carried out between 15 and 23 April 2020 and it gathered responses from 63 financial advisers based in the UK.
