The wealth manager has hired Toby Gower and Francis Walker to its IFA sales team.

Gower will focus on building relationships in the Southwest of England and with national financial adviser firms and networks. He joins Canaccord Genuity Wealth Management from M&G Wealth, where he was a strategic account manager for three years.

Walker will be based in the North of England and will focus on building IFA relationships in that region. He joins from abrdn, where he worked with financial planning businesses as a business development manager for over five years.

Evelyn Partners

The professional services group has appointed Matthew Wells as a partner in its Leeds office.

Wells started his career with Schroders in the City of London and since 2000 has worked for RBC Brewin Dolphin in Leeds, joining Evelyn Partners from his role as senior portfolio manager.

He specialises in managing portfolios for charities and private clients and could be considered as one of the longest serving specialist charity managers in the region.

UBS

The wealth manager has promoted Tobias Wehrli to country head, Jersey.

Wehlri has relocated to Jersey from Zurich, Switzerland for the role. Tom Hill, who has held the role for the past 13 years, has relocated back to the UK from Jersey, taking on a new role at UBS in the integration office as part of the ongoing integration effort post the firm’s finalised acquisition of Credit Suisse in June 2023.

Wehlri joined the firm in 1998 as a graduate in Zurich within the Wealth Planning team, where he advised clients on relocation, financial and estate planning. Before moving into managerial roles within the Wealth Planning team covering large teams across Europe and the emerging markets.

The Openwork Partnership

The network has hired Anna Davies as wealth proposition director, reporting to Rob Askham.

Davies will be responsible for leading the strategic development and management of the Openwork wealth proposition.

As well as ensuring that all corporate projects are in line with the Partnership’s wealth proposition objectives and formulate distribution ideas and initiatives to help Advisers enhance their business and provide the best client outcomes.

Davies joins from St James’ Place, where she was the director of propositions of the investment division.

Lawsons Wealth

The wealth manager has hired Andrea Albertoni as executive wealth manager & global head of sports affairs.

With over 25 years of expertise, is set to lead Lawsons Wealth’s efforts in addressing the unique financial and strategic needs of clients within these dynamic sectors.

The report, which was published this May, found that 18% of Gen-Z investors are more likely to be influenced by social media when making investment decisions, than in their dating decisions.

This statistic highlights the growing influence of social media on young investors, where ‘finfluencers’ have become their predominant source of financial advice.

These popular social media users can be divided into two groups: the first consists of qualified financial advisers who use social media as a platform to share responsible advice. The second group comprises of unqualified spokespeople who provide financial advice and promote financial products on which they have little-to-no expertise.

The latter group has raised alarm bells for financial advisers because these influencers run the risk of spreading misleading information to impressionable young investors. For example, promoting Forex fraudsters and unlawful activities such as crypto scams.

Unfortunately, as many of these ‘finfluencers’ are ‘verified’ on the likes of Instagram and ‘X’ (formerly Twitter), prospective Gen-Z investors are more likely to believe their advice is trustworthy. This is because, as Dean Kemble, chief commercial officer of GSB Capital Ltd, suggests: “the social proof of having millions of followers gives authority and credibility to those who many not use it appropriately”.

To read more on this, visit: 21% of young Brits get investment tips from Instagram

Victoria Ross, chartered financial planner at Progeny, explains: “There are glaring gaps in the provision of personal finance education in schools and the government-approved financial guidance websites such as MoneyHelper and Pension Wise aren’t necessarily the places that many younger people will be attracted to visit.

“This has left a natural space for so-called ‘finfluencers’ to enter and according to research, almost half (44%) of Gen-Z believe they can source good financial advice on social media.

“This is concerning and it is especially important that the advisory world helps to highlight the difference between opinion, guidance and financial advice, with the latter being bespoke to individual needs, circumstances and finances as well as the difference between speculative trading and long-term investing.”

This is particularly dangerous given that generic financial education and bespoke financial education is becoming blurred, according to Ross, who warns that financial guidance is “bespoke to individual needs, circumstances and finances, alongside the difference between speculative trading and long-term investing”.

“The investment space is becoming riddled with irresponsible influencing or even scams,” she adds.

To reduce the amount of misinformation circulating around social media platforms, several financial planners have offered easy ways to tackle this ‘finfluencer’ epidemic.

Education is key

Financial planning firms should provide structured financial education to young investors to tackle the spread of misinformation, according to several advisers.

This education can come in the form of teach-in sessions at schools and universities, or campaigns that teach those from a young age how to spot misinformation, reduce the risk from financial scams, and learning how to responsibly invest.

For example, following the publication of the survey, FCA partnered with Celebs Go Dating’s Anna Williamson to host the event “Swipe Left, Invest Right: how dating principles can be applied to investing”.

This event gathered young investors and encouraged them to adopt the same principles when investing as they do when dating.

Alexandra Loydon, director of partner engagement and consultancy at St James’s Place, says: “Education here is the key; ensuring young people understand the basics of investing, are aware of the risks and equipped to know what checks to carry out before they part with funds.”

Social media is helpful, not a hindrance

That being said, many advisers believe social media should be utilised rather than be seen as a hinderance, according to Ross.

She says the advisory industry must engage with the “clients of the future”, and so, using their “preferred mediums” – whether that be Instagram, TikTok, YouTube or professional sites like LinkedIn – is crucial to ensure the investment industry does not get left behind.

According to Alex Salter, financial planner at The Fry Group, engagement with Gen-Z investors increases via “short, engaging content tailored to the preferences of younger audiences, who typically prefer concise information over lengthy articles and videos”.

This could be enhanced by financial regulators collaborating with social media platforms by sharing “success stories and case studies of individuals who made wise investment decisions and achieved their financial goals”. Or, using social media as a platform to “break down complex financial jargon into simple, understandable and bite-size content”.

Salter adds: “By establishing a social media presence, firms can connect and engage with the younger generation.”

Robyn Allen, partnership development manager at The Openwork Partnership, concludes: “If 18% are more likely to be influenced by social media then that’s where the great advisers and educators in the financial advice industry need to be.”

But despite some embracing AI, there is still some scepticism about the future of tech.

A recent survey by Schroders found that nearly half (43%) of advisers see AI as a threat to their business.

International Adviser spoke with Bravura, Dimensional Fund Advisors, Dynamic Planner, GSB Capital, HSBC Private Banking UK, Intelliflo, JustFA, SG Kleinwort Hambros, The Openwork Partnership, SEI, Shard Capital and St James’s Place for their views on AI as a potential threat and whether advisers should be using it in their business.

‘Unrivalled productivity gains’

“Here’s what ChatGPT had to say….,” said Andrew Dixon, head of wealth planning at SG Kleinwort Hambros, who sought out the views of AI itself on the subject. ChatGPT responded that a combination of artificial and human intelligence could be the future of financial advice.

Chat GPT said: “AI can be both a tool and a potential disruptor for financial advisers. While AI can assist advisers in analysing data, automating tasks and providing insights, it could also pose a competitive threat if it becomes sophisticated enough to replace certain aspects of the advisory role.

“However, human expertise, emotional intelligence and personalised advice are still highly valued by many clients, so a collaborative approach between AI and human advisers is more likely to emerge in the future.”

Dixon added: “I wouldn’t disagree with this statement. As high net worth advisers we do not know where this will go in the long term but in the medium term, AI offers unrivalled productivity gains”.

‘Providing holistic advice is a complex task’

Richard Wake, chief customer officer at Intelliflo, also highlighted the advantage that advisers can bring, in comparison with AI.

“There’s no doubt that AI will significantly impact the financial services industry, particularly in areas related to automation, machine learning and the use of large language models like ChatGPT,” he said. “Having said that, it’s important to acknowledge that providing holistic advice is a complex task that requires an in-depth understanding of each client, often established through personalised Q&A sessions and relationship building.

“While AI can support certain aspects, it’s difficult to envisage that being delivered by ChatGPT, unless it’s at the robo end of the market, regulatory constraints notwithstanding.”

‘An opportunity to better anticipate what clients want’

James Thomson, head of investment counselling, HSBC Private Banking UK, said that AI is not a threat but an opportunity.

He said: “We don’t agree that AI itself represents a threat to our business, at least with regard to computers taking relationship managers’ or investment advisers’ jobs. What we know is that most clients prefer to engage digitally with us for non-value adding services such as reporting, accessing research and product updates or self-directed trading.

“But clients still overwhelmingly want to engage with advisers for personalised advice and other value-adding services. The biggest risk is that we don’t adapt to the new opportunities that this technology provides as quickly as our competitors and that we therefore get left behind.

“AI represents an opportunity to better anticipate what our clients want, better understand what they want to hear from us about and enable us to provide clients with well-targeted investment advice. The winners from this technology will ultimately be those firms that use AI to enable their advisers to do these things better than anyone else.”

‘No substitute for the ‘human touch’

David Jones, head of UK and Ireland advisor group at Dimensional Fund Advisors, also views AI as a positive development.

“We’re with the majority of advisers who see AI as an opportunity, rather than a threat,” he said. “AI has the potential to make advisers’ lives easier and improve clients’ experiences.

“AI is a tool like any other in that you have to evaluate whether it does the job you want before you use it. For many advisers, there are a lot of tasks within their business that AI will be well suited to – like taking notes and making appointments. In these areas there is the potential for AI tools to make advisers’ and clients’ lives easier.

“There will also be parts of their business where there is no substitute for the ‘human touch’. And the best advisers know that the real value they offer their clients is more than the sum of the services they deliver. So, if an adviser feels genuinely threatened by AI, maybe they should take a good look at their proposition and ask themselves whether there is more they could do to raise their game.”

‘AI does not meet all client needs’

Louis Williams, head of psychology & behavioural insights at Dynamic Planner, said that although AI is no substitute for advisers’ ability to empathise, it has its advantages.

“AI is not a threat to the adviser-client relationship,” Williams said. “It provides a different offering but one that currently does not meet all client needs, such as providing reassurance and guidance during difficult times. AI is not emotionally intelligent enough to empathise with clients and understand their complex emotions.

“Despite this, advice firms should consider how AI is being used by their competitors: use of AI may become a threat as firms begin to adopt a collaborative approach, using AI to increase productivity and efficiency.

“AI can be used to reduce costs and increase productivity and provide assistance with writing reports; managing client data; generating behavioural and data insights; increasing engagement; tailoring content and communications; and increasing clients’ financial literacy and wellbeing through educational resources. AI may also provide opportunities for firms to support those clients with less wealth, who require less complex services.”

Williams also highlighted some disadvantages of AI, which could become problematic in the advice sector.

He added: “While we should embrace AI and use technology within our industry, we should not become solely dependent on AI. The adviser-client relationship is irreplaceable and AI algorithms can be heavily biased, using stereotypes to make inferences and provide solutions. When adopting AI, it is important to ensure that scientific approaches continue to be used, considering individual needs and objectives to create suitable recommendations.”

While he acknowledged the benefits that AI can bring, Just FA business development manager John Driscoll also pointed to the importance of client preferences.

Driscoll said: “AI can have a place in the financial planning space in terms of creating efficiencies and more sophisticated financial plans. However, it it still ultimately the personal relationship, reassurance and financial coaching from a human financial planner that clients seek and value the most. We don’t believe that this will change.

“There is a great deal of general wariness regarding AI and we believe that this will be particularly relevant when clients are trusting someone with something as important as their financial planning.”

‘Embrace it now, in the right way’

Setul Mehta, head of adviser services & business development at The Openwork Partnership, believes how advisers use AI is key.

He said: “AI in the advice space is still at its infancy compared to what it will be like in a decade, therefore, we have to be careful and curious about AI in the advice market but certainly not fearful. For the advice space, AI will be at its most powerful when integrated with adviser processes, not as a replacement for advisers, which is why embracing it now in the right way is important.

“To give an example of how it could work in protection, if a client has underlying medical disclosures, then AI can start to make stronger calls on which cases to put on risk without the need for substantial levels of underwriting, which then reduces GP/insurer workloads.

“Advisers can also use AI as part of ongoing wealth servicing. It ‘knows’ when it’s a client’s birthday and can facilitate sending a text or birthday card. AI also knows how many times a client is looking at their platform accounts and can determine if a client is worried and trigger intervention.

“In the mortgage space, imagine AI being able to tell you when it might be right for a client to pay an early repayment charge and take up a new deal rather than just wait for the end of a standard-deal term, which is generally what happens now.

“There are lots of possibilities for AI to support and facilitate greater client support and engagement, but understanding EQ and behaviour is in its initial stages. Also, AI doesn’t have strong levels of governance built in around its uses within the advice space – this is something to watch out for. AI is here and will not be disappearing. It is important to harness it for what it is now, but to be realistic about its uses.”

‘It’s essential not to blindly trust it’

Ernst Knacke, head of research at Shard Capital, warned about the pitfalls of AI.

He said: “The rapid development of AI has brought a surge of excitement, uncertainty and questions across various industries, especially investment management and financial advice. The emergence of large language models like ChatGPT introduces potential disruptions to traditional knowledge-based work and business models, presenting both risks and opportunities within the financial-advice sector.

“While AI arguably holds promise to improve client outcomes, risk management and asset allocation, it is crucial that investment managers and advisers do not rely solely on AI-generated advice. Despite the promise, these models often produce incorrect information or misinformation.

“AI models are influenced by the dataset they were trained on, just like children are influenced by the traditions of their parents. At this stage, it’s essential for advisers and investors not to blindly trust it. Acknowledging the limitations of AI is perhaps the first step in harnessing its potential while avoiding potential pitfalls.

“That said, we believe there are two potential mistakes that advisers can make in the current landscape: relying solely on AI for providing advice to clients, without exercising human judgment and doing their own research and analysis; and assuming that AI technology will not disrupt their business and ignoring its potential impact on their practices.

“Eventually, AI will be used as a tool in the investment framework, which should lead to better client outcomes and more effective risk management. It might even give advice without any human intervention. But we are a long way away from that.

“In the coming years, most advisers should look into where AI can be used – for instance, where it might replace mundane tasks, or improve efficiency in their overall investment proposition. As AI continues to evolve, this internal review should perhaps be an evolving process in itself.

“What is clear is that the time to start and conduct thorough research and gather evidence of how to incorporate AI, is today.

“We believe the benefits will be twofold − better client outcomes and increased profitability. “The increased profitability should result in further fee compression. It’s a win-win for clients in the long term. However, achieving these improvements will take time and might even reduce adviser profitability in the short term. But what is undeniable, is that the advice industry is entering an era of change.

“While AI presents opportunities for improvement and growth, it is essential to approach it with conviction in its essence, but scepticism in its quality. By adopting a first-principles and R&D-based approach, financial advisers and investors can effectively navigate the evolving landscape and use AI to their advantage in the near future, while maintaining a focus on delivering value and making well-informed decisions today.”

‘Huge potential’

Change due to the emergence of AI is inevitable, observed Jonathan Hawkins, principal consultant at Bravura.

Hawkins said: “AI has huge potential to improve the UK’s advice market. As the tech continues to evolve, advisers will start to see more AI-based applications and microservices creeping into their day-to-day interactions with clients to help create efficiencies and automate standardised processes.

“We’re not quite there yet, but eventually AI will fundamentally alter the way advisers work and interact with clients. This shouldn’t, however, be viewed as a threat. In most cases, AI will enable advisers to spend more time focusing on their clients’ ambitions and growing their business, rather than basic admin tasks, which are only increasing in tandem with the regulatory burden.

“One of the great things about AI is its ability to offer scale – and this could be a game changer when things like digital advice start to lift off in the UK. With the current advice gap only increasing in recent years, AI could be a great way to help advisers serve more clients and democratise the advice offering. Take the recent launch of the Money Saving Expert app, which uses a ChatGPT plug-in to answer finance-related enquiries. This is a great innovation, and we can expect to see more of these types of services emerge in the future.

“One area the advice industry will have to pay particular attention to is ensuring a consistent level of standards across the industry – and that will only come with training and refining the tech. No one is currently assessing the output of bots like ChatGPT too closely and this could pose real issues if not dealt with soon. Where is the bot getting its information from and is it providing the correct output based on the type of enquiry? What privacy concerns do we have with information being fed into the AI model? These are key questions yet to be answered by the tech providers, industry and regulators.

“Ultimately, advisers shouldn’t fear the impact of AI but instead welcome it with open arms as it will help achieve greater scale, enable them to focus on more meaningful work and support them in serving more customers.”

‘Essential to maintain a balance’

Dean Kemble, chief commercial officer, GSB Capital says increased efficiency, personalisation and cost savings are some of the key advantages of using AI, but he says there are concerns to be addressed too.

He said: “When considering the financial-advice market, we must remember that technology has been revolutionary over the past two decades. AI has existed for some time but is gaining media attention due to its continued evolution.

“By analysing financial data rapidly and precisely, AI can detect trends, patterns and investment opportunities that may go unnoticed by human advisers. This increased efficiency can accelerate decision-making and provide better-informed choices.

“Financial advice can now be personalised, using algorithms considering individual preferences, risk tolerance and financial goals. This leads to more customised and relevant recommendations for clients. With the help of AI-powered financial tools, customers can receive assistance and support around the clock, improving accessibility and customer service. This reduces the influence of human biases on financial advice, ensuring more objective and data-driven recommendations.

“By taking various factors and historical data into account, AI algorithms can accurately evaluate risks. This can help in creating diverse portfolios and minimising potential risks. By automating some financial advisory tasks using these tools, financial institutions and clients can save costs.

“That said, it is critically important to acknowledge the crucial role that human financial advisers play in the advice process. A notable advantage they have is their capacity to empathise with clients and comprehend their emotional requirements and worries. It remains to be seen whether this emotional intelligence is something that AI will be able to possess.

“Financial advice using AI algorithms can also be difficult to comprehend, causing concerns about transparency and accountability. Since it relies on data, there may be concerns about data privacy and security, especially if sensitive financial information is involved. When considering data, it also relies on the quality of the data.

“Depending solely on AI for financial advice may lead to a decrease in understanding of financial concepts among clients, which could create a reliance on algorithms without a solid foundation in financial literacy. Its use in financial advice will be subject to regulatory scrutiny and may present challenges in complying with existing financial regulations. These systems are not exempt from errors or biases, and unforeseen risks may emerge, affecting financial advice and investment outcomes.

“Using AI in the financial-advice sector can significantly enhance operational efficiency, enable tailored recommendations and aid in risk assessment. However, it is essential to maintain a balance between the use of its capabilities and the incorporation of the human touch to address emotional aspects and establish trust with clients.

“Robust data privacy and security measures must also be implemented to protect clients’ sensitive financial data. As AI technology advances, financial institutions and advisers must remain knowledgeable about its capabilities and limitations, adhere to applicable regulations and uphold ethical standards in their practices.”

‘A complementary tool rather than a replacement for human expertise’

Zach Womack, chief technology officer at SEI, also took the view that it’s important to strike a balance between AI and adviser capabilities.

He added: “While some may view AI as a threat to the traditional role of financial advisers, it’s essential to recognise that AI can bring significant benefits to their businesses and enhance the quality of financial advice provided to clients if advisers incorporate technology thoughtfully and with the appropriate guardrails.

“Financial advisers should be open to incorporating new technologies into their businesses, especially technologies like AI that can greatly improve their efficiency and productivity. AI-powered tools can analyse vast amounts of data in real time, enabling advisers to make well-informed decisions more quickly. This empowers advisers to focus on higher-level tasks, such as understanding clients’ unique needs, providing personalised advice, and building stronger relationships with their clients.

“Using AI and machine learning does provide potential challenges and pitfalls. AI should be viewed as a complementary tool rather than a complete replacement for human expertise. The human touch in financial advice is crucial for understanding the personalised aspects of clients’ financial goals.

“AI should not be seen as a threat to financial advisers but rather as a valuable tool that can augment their capabilities and provide enhanced services to clients. By embracing AI in their businesses, financial advisers can improve efficiency, accuracy and personalisation of their advice. The positives of AI in advice lie in its ability to process vast amounts of data, identify patterns and improve operational efficiency. Striking the right balance between human expertise and AI-powered insights is key to leveraging AI’s full potential for the benefit of both advisers and their clients.”

‘Here to stay’

Ian Mackenzie, chief operations and technology officer at St. James’s Place, said: “AI is here to stay, so let’s embrace it as an opportunity rather than see it as a challenge. In a face-to-face industry such as financial advice, the adoption of AI and data can be a force of good that can make firms easier to do business with.

“Great financial advice is all about getting to know the client so, for businesses like our own, it’s about putting technology behind, not in front of, the adviser. Used in the right way, AI can help power client relationships, improve experiences and provide better outcomes, alongside optimising administration processes for ease and efficiency. That can only be a good thing.

“We are already seeing first-hand how innovative technologies can evolve our business and we are only just scratching the surface in terms of what this technology can do in redefining the future of financial advice.”

But unfortunately, a recent Financial Services Compensation Scheme (FSCS) survey found that 19 million Brits aged over 50 are not considering annuities.

Respondents reported a range of reasons, including not knowing if annuities are right for them, fear of the provider going bust, not understanding how they work and a lack of protection if something goes wrong.

But are they missing out?

International Adviser spoke with Arbuthnot Latham, Atomos, Copia, The Fry Group, GBST, GPFM, Mercer & Hole, The Openwork Partnership, Progeny, Royal London, SG Kleinwort Hambros and Succession Wealth for their views.

A different retirement market

Times have changed, says Andrew Dixon, head of wealth planning at SG Kleinwort Hambros.

“While pension death benefits remain very attractive, it is difficult to see a return to pre-2008 levels,” he added. “The retirement market today is fundamentally different. Many people forget that there was little value in not taking an annuity at age 75 under the alternatively-secured pension rules. While annuities should certainly be considered, unless pension death benefits change it is difficult to see annuities returning to their pre-2008 levels.

“However, higher annuity rates mean higher returns from lower-risk assets, cash and government bonds. Therefore, even risk-averse, high-net-worth individuals are generally willing to trade the additional income potentially available from an annuity for the inheritance-tax benefits of pensions.”

‘Vastly different and better’

Scott Atkinson, managing director of GPFM Chartered Financial Planners, also points to a change in the landscape.

He explains: “Annuities have always had a place in financial planning, even when rates are not particularly attractive. Annuities offer certainty and are a useful financial-planning tool, particularly with more cautious and clients with less knowledge of investments.

“Certainly, annuities should always be fully considered where a client has a shortfall between guaranteed income and their non-discretionary spending. The range of annuity products and options now available is vastly different and better than 10-15 years ago.”

‘Annuities should not be ignored’

Jane Martin, chartered financial planner at Atomos, says annuities should be on the table from the start.

“Annuities should not be ignored and should be considered as an option. It is good practice to do this at the outset of advice, but also to review continuously. If they are not appropriate at the outset, they may become appropriate at a later stage. Clients’ health, marital status and other assets should be included as part of the annual review of income drawdown.

Partial annuities can be a good halfway house to secure ‘essential’ income for a household. Fixed-term annuities can help with shorter-term essential spending or tiding people over until other secured income, final salary and/or state pensions become payable.”

Consider basic outgoings

Michael Lapham, director of financial planning at accountants Mercer & Hole, added: “In our experience, the main reason most clients do not buy an annuity is not perceived low rates but the fact that they want to be able to draw pension benefits flexibly or that drawdown death benefits meet their needs better. The fact that we have seen an increase in annuity rates over the past year or two may not necessarily change this stance.

“However, in these instances we would still advise any clients whose basic outgoings, such as food and heating bills, are not covered by guaranteed sources of income to still consider purchasing an annuity with at least part of their pension savings, to meet these costs.”

Rachel Wyatt, wealth planner at Arbuthnot Latham, said: “As you approach retirement, you need to decide how to convert savings into an income stream. An annuity requires you to fix the terms on how your income will be paid at the outset. This decision can feel overwhelming, and clients can be quick to dismiss annuities, stating costs, a desire to retain control over their savings and a reluctance to give up income flexibility. It may feel like a more straightforward option to draw income direct from your savings, but your income is at risk. You remain invested in the market and the sustainability of your income will depend on the performance of the underlying assets.

“When you purchase an annuity, you transfer investment risk to the insurance company. For most pensioners, their main concern is having lifetime financial security, and so annuities can give a level of financial security, providing peace of mind that they will not outlive their savings. In exchange for a capital lump sum, you receive a secure and regular income that is 100% protected under the FSCS, with no upper claim limit.

“Good retirement planning should consider the ability of all the available options in meeting a client’s objectives. Understanding how best to meet your income requirements in retirement will depend on your individual circumstances, your need for guaranteed income and your tolerance and appetite for risk.”

‘Demands and objectives of a modern retirement’

Hayley Burns, wealth planner at Succession Wealth, says that annuities should always be looked at as an option.

She said: “Annuities should always be a consideration when it comes to retirement planning; having peace of mind that you have a guaranteed income for life can be a great option.

“However, as fewer of us nowadays have ‘traditional’ family set ups, whether by choosing not to get married or having been divorced, annuities have limitations. Many of us are looking to ensure that our beneficiaries, not just a spouse, receive as much of our hard-earned and unused retirement fund as possible. This understandably makes the idea of having to choose a traditional ‘guarantee’ period, which you may well live past, less desirable.

“I also find that more and more people are concentrating on enjoying the earlier years of retirement, with the knowledge that in later years they may well have less income available and are comfortable with that. My clients are increasingly content with knowing that they won’t be doing the same amount of travelling or socialising as they age.

“The ability to have a more flexible approach to retirement, whether that is to allow a partial retirement, retirement from a high-pressure job or simply to allow budget for travel, has become a priority for many. Although some annuity providers have introduced more innovative short-term annuities in recent years, making them more attractive in some cases, in my opinion, they have not caught up with the demands and objectives of a modern retirement.”

Opportunity for provider innovation

David Simpson, head of EMEA at GBST, said: “We think that annuities play an important role in later-life income planning. With changing life expectancy, wealth composition and expectations of retirement, advisers and investors are likely to need to take more of a ‘mix and match’ approach to income planning, using both guaranteed-income solutions and income drawdown to support income requirements, aligned to an individual’s needs through different stages of retirement.

“There is a huge opportunity for providers to create more innovative retirement solutions that combine annuities with flexi-access drawdown that sit alongside ISAs, general investment accounts and investment bonds on the same platform, to make it easier for advisers to meet their client’s retirement-income needs while optimising tax and death benefits.

“While the technology is already available to support the distribution of different retirement solutions within a single tax-efficient wrapper and alongside other retail investment products on the same platform, many traditional annuity providers are not currently set up to deliver a scalable new business proposition that meets the expected demand for these solutions.”

Financial Conduct Authority (FCA) focus on decumulation

Robert Vaudry, managing director of Copia, expects an increased use of annuities.

He said: “Annuities offer attractive rates of income and are uncorrelated to other assets, which makes them a useful part of a retirement income plan. At Copia, we’ve taken this idea a step further, building a decumulation strategy that works in conjunction with a guaranteed-income solution to increase the opportunity to outperform and provide greater certainty of outcome in retirement without increasing the overall investment risk.

“Using guaranteed income as an asset class in this way means we can offer investors in drawdown some protection against the effects of ‘pound cost ravaging’ by reducing the need to sell assets in unfavourable markets to generate income. More of the assets stay invested for longer, increasing the opportunity to outperform, without increasing the investor’s overall risk. As the FCA puts more focus on decumulation with its thematic review of retirement-income advice, we’d expect to see further innovation around investing for retirement and increased use of annuities as part of a combined portfolio.”

Changing requirements

David Owen, wealth proposition director at the Openwork Partnership, says: “We have all heard of the 4% rule – a rule of thumb that says if we invest in a balanced portfolio and take 4% per year, gross of cost and charges, the money should last 30 years – leaving £1 remaining. However, a 65-year-old male in the UK now, who gets whole-of-market advice, will be offered around 5%, inflation-linked, guaranteed, via an annuity. Or, for those who don’t expect inflation to ever feature again in the economy, 8.5% flat for life.

“Of course, each year our requirements change, and this is why an annual retirement-income strategy needs a tactical adjustment – using all the tools available.”

Clare Moffat, pensions expert at Royal London, says annuities have their place and should not be overlooked.

She added: “If you purchased an annuity in 2021, escalating by either CPI or RPI, you will be delighted with the growth in income because of the high rates of inflation. If you didn’t choose escalation, you’d be in a very different position as the purchasing power of your income will be reducing significantly.

“However, if you did choose an escalation option, it will have greatly reduced your income level at outset, though that income will be increasing now. Although these vagaries make annuities seem complex and can be difficult to explain, they shouldn’t be completely disregarded. Retirement will depend on an individual’s needs and while annuities aren’t for everyone, there are scenarios where they could be beneficial, so they should be considered as part of the retirement planning process.

“Many want complete flexibility with their retirement income, which explains the popularity of drawdown, while for others, buying an annuity offers them the comfort of a guaranteed income. As people get older, some are keen to introduce a form of guarantee, so a happy medium for many is an annuity to cover basic living costs, providing comfort and reassurance, while leaving the rest invested for extra flexibility.”

Limits future options

Huw Wedlock, director at The Fry Group, Singapore, said: “Brits have largely turned their back on annuities over the last 15 years, but now could be a good time to reconsider. One of the key drivers concerns interest rates, which have risen sharply over the past 18 months. Given that annuity rates largely follow interest rates, it’s clear that locking in a long-term, guaranteed income stream in the form of an annuity now makes much more sense than it has in the past 15 years.

“An annuity can provide a guaranteed income stream for life − one that isn’t dependent on underlying investment performance. Annuities can have additional levels of flexibility built into them too, such as single or joint-life options, spousal benefits and indexed annuity payments, as well as capital guarantees.

“But it’s worth bearing in mind that buying an annuity is a one-off decision and does limit future options when it comes to accessing any pension savings. Remember too that no further death benefits are available following annuity purchase, once the person receiving them has passed away. Pension drawdown remains the most flexible way of accessing retirement pots.”

Dean Kemble, chief commercial officer at GSB Capital, added: “With changes within UK pensions regulation over the past 10 years and with interest rates historically low until recently, annuities have not been seen as a preferred option for most with a sizeable pension.

“Annuities and fashion do not usually go hand in hand in a sentence. Still, with interest rates rising, there is reason for them to be considered as a solution for retirement income. I believe several factors discouraged people from considering annuities as a feasible option for their retirement funds in the past.

“Once an individual purchases an annuity, it typically cannot be changed or reversed, making it inflexible. This may cause hesitation in committing a large portion of one’s savings to an annuity, mainly if one needs to access those funds for unexpected expenses or emergencies. When an individual decides to purchase an annuity, they must understand that they are surrendering control of their principal. This means that they will not have the ability to make investment decisions or access the lump sum of their money.

“While annuities provide a guaranteed income stream for life, some individuals may be concerned about ‘wasting’ their money if they pass away relatively early after purchasing the annuity. They worry that their heirs won’t receive a substantial inheritance. As there are many options, including level annuities; escalating annuities; inflation-linked annuities; impaired or enhanced annuities; lifetime annuities; joint-life annuities and short-term or fixed-term annuities, professional advice should be sought.

“Although annuities may not be suitable for everyone, they can still provide significant benefits to individuals who want a reliable income source during retirement and protection from the risk of running out of savings. With interest rates rising, the option should be more of an informed consideration than in the past, when interest rates were low. Before deciding whether an annuity is the right choice, it’s crucial for individuals to seek advice from a financial adviser and to evaluate their financial goals, risk tolerance and overall retirement plan. This will help individuals understand the advantages and disadvantages of annuities and other retirement-income strategies.”

‘A niche product’

James Batchelor, a chartered financial planner at Progeny, said that despite increasing interest in annuities, they do remain a “niche product”.

He added: “It is certainly true that annuity rates represent better value for money than they did a few years ago, but this has also been accompanied by increasingly higher inflation. This means that unless a client selects an inflation-linked annuity, the real-terms value of the annuity that they purchase may be more quickly eroded over time.

“For people who have large pension funds relative to their needs and who are risk averse for example, buying an annuity now would provide a ‘copper-bottomed’ income at a better level then we have seen for several years. Not only that, but this income will continue to be paid for life, regardless of how long someone lives, so this could be a valuable guarantee that they could wish to take advantage of.

“On the other hand, the level of income available does not change the fundamental nature of annuities. Someone must still extinguish their pension fund in order to buy one, compared to the greater choice offered by drawdown. It is also the case that unless someone purchases an inflation-linked annuity, the real-terms value of the income provided will erode over time. The level of starting income that these inflation-linked products offer, however, is noticeably lower than standard annuities.

“This means that for those people who wish to buy an annuity, the choice is between a lower level of starting income that is protected against inflation in the future or a higher level of starting income that will gradually lose its purchasing power.

“It does not have to be an either/or situation, however, and for some clients, particularly those who do not have access to a defined-benefit pension, there can be logic in buying an annuity that will cover a portion of total living costs, such as basic living costs only, and leaving the remaining pension fund in drawdown.

“This can help to relieve anxiety about meeting essential living costs while allowing the residual unspent funds to remain invested, which then have the potential to achieve long-term, compound growth.”

But recently, former pensions minister Steve Webb said that he believes that inheritance plays a large part in people’s retirement planning.

There are many questions that can be sparked from this comment:

• Does this mean Brits are too dependent on using an inheritance on retirement?
• Should they depend on inheritance to fund retirement and if so, will this be enough?
• Will there be too many Brits with not enough money to fund retirement if they rely solely on inheritance rather than on private pensions?
• Should Brits find ways to diversify their pension pots?

International Adviser spoke with Arbuthnot Latham, Atomos, Close Brothers Asset Management, First Sentinel Wealth, The Fry Group, GPFM Chartered Financial Planners, GSB Capital, Howard Kennedy, HSBC Private Banking UK, Kingswood Group, The Openwork Partnership, Progeny, Royal London, St James’s Place and Y TREE to find out some answers.

Two obvious flaws

Sarah Corney, financial planner at Close Brothers Asset Management, firmly disagrees that Brits should be dependent on an inheritance for their retirement planning.

She said: “An inheritance should undoubtedly be viewed as an unexpected windfall or a welcome boost to a retirement plan, but relying on a sum which is subject to so many uncertainties is not prudent financial planning.

“Two obvious flaws are the timing of a payment and the value of the eventual estate. Long-term care costs are expensive and without any changes in government policy on the horizon, elderly individuals are largely responsible for funding their own care for an undetermined time frame.

“The lack of control when considering either of these factors is not going to provide peace of mind when planning your retirement. Also, the beneficiaries of the will might not include you. Investing tax efficiently over the long term is key in establishing a prudent financial plan for retirement, thereby benefiting from gross roll up and making your investments work harder for you.

“Regularly reassessing the level of risk being applied to investments is a good idea when considering long-term savings; taking a higher level of risk when you are younger gives your savings the potential for long-term capital growth.”

‘No guarantee’

Jeremy Franks, head of wealth planning at HSBC Private Banking UK, also says there are more sensible ways to approach retirement planning than relying on inheritances.

He said: “Depending on a potential inheritance to fund retirement can be a risky strategy. Research shows that life expectancy has risen significantly, and people are often living well into their 90s. You may receive your inheritance later than you imagined – possibly when you have retired. Furthermore, increasing costs of later-life care means that there is no guarantee you will receive an inheritance. Even if you do, it might not be nearly enough to retire on.

“A sensible approach is to plan for your retirement without inheritance. Focus on creating a strategy that you can control such as contributing the maximum annual allowance to your pension.

“It is important to start saving as early as possible and review regularly to make sure the plan is on course to meet your needs in retirement. Carry forward could also boost your pension pot by using unused allowances from the previous three tax years.”

‘Build your own retirement fund’

Amanda Blakely, wealth planner at Arbuthnot Latham, also highlights the possibility of receiving no inheritance.

She said: “The over-reliance on a potential inheritance to fund your retirement is a potentially risky strategy. People are living for longer which means that you could be well into retirement before you receive any form of inheritance, and the rising costs of care could easily exhaust any prospects of receiving an inheritance.

“Instead, the focus should be on building your own retirement fund. The introduction of auto- enrolment has encouraged people to start saving into pensions, but many are failing to maximise their full allowances available.

“Plus, auto-enrolment schemes were initially focused on keeping costs low, but as these pots grow and with the current challenging investment market conditions, the focus should shift to delivering strong investment returns.

As this can have a massive impact on the eventual value of your savings come retirement, and in turn quality of life, I would therefore strongly encourage people to sit down with a pension specialist to review their overall retirement strategy.”

Dangerous strategy

Nicole Aubin-Parvu, legal director at Howard Kennedy, and Liz Palmer, partner at Howard Kennedy, emphasise the importance of increasing pension savings.

“While the hope of a future inheritance has always been a factor in people’s financial planning, the increase in house prices over the last half century has also increased the perceived significance of inheritance as a contribution to retirement,” they said. “As a result, people are becoming more critical of inheritance tax (IHT) and rising social-care costs, and how both may erode the value of what they ultimately receive as heirs.

“However, over-reliance on inheritance is a dangerous strategy. Ignoring social-care costs, as life expectancy increases, more of a parent’s income and capital is likely to be used up supporting themselves during their retirement. The IHT nil-rate band, the sum which an individual can leave to their heirs free of IHT, has remained at its current level of £325,000 ($414,000, €380,000) since April 2009, and is accordingly reducing in real terms, especially at current rates of inflation.

“There are also non-financial risks to consider. Children may fall out with their parents and be cut out of their wills. Second marriages and families are becoming more common, and potential disputes between first and second families, or even with siblings or other family members, after a parent’s death, have been occurring more frequently in recent years. When such disputes arise, they tend to erode the value of a deceased’s estate significantly in legal and other costs.

“For all these reasons, people should be trying, where possible, to increase their own pension savings to provide themselves with a degree of certainty for the future. If they can, parents might be better off making lifetime gifts to their children, perhaps taking advantage of available tax reliefs and exemptions, to help them build up such savings, rather than waiting to pass everything to them on death.”

The importance of reassurance

Jane Martin, chartered financial planner at Atomos, says that people waiting for an inheritance to fund retirement may be overlooking a key factor.

She said: “One of the added-value aspects of seeking advice in retirement is reassurance. Fixating on an inheritance to support retirement simply does not provide that reassurance. There is no certainty of date, amount or even if there will be any inheritance paid.

“In many cases, those who plan for their retirement without taking inheritance into account will often find that it then becomes surplus to their needs and will look to use a deed of variation and pass it down to their children and or grandchildren.

“Parents and grandparents can pass their pensions on to their beneficiaries and make third-party contributions of £3,600 gross (£2,808 net) each year which they may do as a capital gift or out of normal income rules.”

‘Anything but guaranteed’

Toby Band, managing director of First Sentinel Wealth, said: “Broadly speaking, Brits are too fixated on inheritance to fund retirement and they should not depend on inheritance to fund retirement.

“With 74% of over 65s owning their own home outright and the average UK property worth just under £300,000, it’s understandable that clients think a healthy inheritance will arrive at some point. Yet, with the average care home costing £40,000 per year and up to £100,000 for specialist care homes, a healthy inheritance is anything but guaranteed.”

He also says that many people don’t earmark their inheritance for pension savings.

“When advising our clients, we always model the future assuming no inheritance,” Band added. “The reality is, we don’t know when it will arrive, we don’t know how much will arrive and we also see many recipients use the funds to pay off a mortgage or fund holiday-home purchases. Rarely, does the inheritance go towards retirement.

“Even if the average inheritance of £334,000 does arrive in full, ignoring private-pension saving for retirement is a big mistake. The average couple needs £34,000 per annum to live moderately and £49,700 to live comfortably. The inheritance would soon run out after accounting for the necessary withdrawals and inflation.”

‘Start early, contribute consistently and diversify investments’

Max Sullivan, wealth planner at Kingswood Group, says there are key actions people can take to boost their pensions instead of waiting to inherit.

“Relying solely on a supposed inheritance to fund retirement is not advisable, as it is not guaranteed and may not be sufficient,” he said. “Instead, individuals should actively contribute to private pensions and other retirement-savings vehicles to take control of their financial future.

“Starting early, contributing consistently and diversifying investments can help boost pension pots. Individuals should also take advantage of employer contributions, keep track of pensions, seek professional advice where needed and consider additional income streams for financial security and longevity throughout retirement.”

View it as a bonus

Scott Atkinson, managing director of GPFM Chartered Financial Planners, part of Loyal North Group, says inheritance should be totally excluded from retirement planning.

He said: “Although it is predicted that over £5trn of generational wealth will be transferred in the next 30 years, it is always risky from a financial-planning perspective to rely on and factor in receipt of inherited funds when producing a financial plan.

“Family fall outs, changes in circumstances and care costs can quickly impact inheritances. It is our standard practice to completely exclude inheritance where ensuring clients can achieve their retirement objectives.

“Any inheritance should really be viewed as a ‘bonus’ when undertaking financial planning.”

Elsewhere, David Owen, wealth proposition director at The Openwork Partnership, says that relying on inheritance can lead to negative outcomes.

“The shocking fact is that many of us will get to retirement with an underlying health problem that will, over time, result in care and nursing,” Owen said. “This means that for many, the probable inheritance will be used on care fees. There is therefore a real danger that terrible financial decisions will be made while waiting for the ‘big, solve-everything’ inheritance. Instead, we ought to save well and spend with caution now as inheritance is an unlikely event.”

‘A gift, not a given’

Clare Moffat, pensions expert at Royal London, reminds that inheritance is not always as much as children might expect.

“Inheritance is a gift, not a given and can depend on a number of things, including the amount of money available; how many beneficiaries and any tax implications there are; how investments are looked after; and whether long-term care comes into the equation,” Moffat said. “There is a growing trend for parents to release funds to help their adult children financially, and it’s often forgotten that an inheritance will normally go to a spouse first. So, while it could be a nice ‘top-up’, it’s not the best idea to depend on an inheritance to fund retirement.

“We recently carried out some research where we asked how retirement would be funded. Unsurprisingly, the most common answer was a workplace pension (39%) and the state pension (39%). However, 13% responded that family inheritance would fund their retirement, so a significant number are depending on it.

“While auto enrolment is helping to fund retirement, it isn’t giving us the guaranteed income of defined-benefit pensions of old or the accompanying spouses’ pensions. Meanwhile, paying anything extra into a pension is currently competing with increasing mortgage costs and the general increase in the cost of living. The challenge is to ensure employers offer the best schemes possible to support their employees and for employees to make the most of them.”

‘Crucial to take responsibility’

Dean Kemble, chief commercial officer at GSB Capital Ltd, also emphasises that children should not depend on inheritance from their parents.

He said: “Many countries, including the UK, are facing the problem of insufficient retirement savings. Depending on inheritance as a plan is not a practical option, as most family assets are often linked to property and may be subject to inheritance or capital-gains taxes.

“There might be an assumption or expectation that individuals will receive a substantial inheritance from their parents or other relatives. In the event that this assumption does not come to fruition or falls short of expectations, what would be the alternative plan(s)?

“It is crucial for individuals to take responsibility and proactive measures towards securing a stable financial future for retirement instead of solely depending on inheritance. This requires addressing financial planning and savings habits and enhancing one’s financial literacy. Additionally, promoting pension options and investment strategies can significantly contribute to achieving this objective. An inheritance should be seen as a bonus to the retirement plan.

“Some people may have difficulty saving enough for their retirement because of gaps in their pension contributions. This could be due to inconsistent employment, being self-employed or experiencing periods of low income. Furthermore, as people are living longer, they require more funds to support themselves during retirement.

“Longer lifespans place added stress on retirement savings as well as state pension schemes. As a result, concerns about the adequacy of the state pension may lead some individuals to rely more heavily on potential inheritances. There is therefore even more reason to plan than rely on an inheritance.

“Finally, collaboration between government and private institutions should be front and centre for long-term planning. For many years in the UK, this area of government has not had the focus it deserves, with ministers changing on a regular basis.”

‘Never rely on any single source to fund retirement’

Richard Gillham, a financial planner at Progeny, says it is important not to make assumptions.

He said: “Many people may rely too heavily on a future inheritance to fund their retirement, but this presents numerous risks.

“Based on increasing life-expectancy figures, older generations are likely to live well into their retirement years and/or could incur significant long-term care costs, which can quickly deplete any assets for inheritance. It can also mean that people often don’t receive an inheritance until they themselves are in their 70s or 80s, by which time it may be too late to make a significant difference to their life in retirement.

“It’s worth noting that under English law, there is no forced heirship provision which mandates next-of-kin entitlement, in contrast to the law in Germany or France. Therefore, people have the ability and freedom to leave their assets to whoever they wish. Disinheritance is also a risk factor that should not be ruled out by the next generation.

“Other potential pitfalls include a property held as joint tenants passing to someone outside the family, such as a co-owner, and it’s important not to forget about the prospect of HM Revenue and Customs (HMRC) taking its 40% share via inheritance tax, if an estate is large enough.

“Essentially, it’s good practice to never rely on any single source to fund retirement, because it lacks any diversification, which is a bedrock of sound financial planning.”

‘Unintended consequence’

Eliana Sydes, head of financial life strategy at Y TREE, said: “Properties have long been thought of as profit-making centres and a means of preserving wealth for future generations in the UK. With people struggling more and more with pension savings, this cultural mindset has an unintended consequence: some individuals may become complacent about retirement if they anticipate receiving their parents’ properties as an inheritance, assuming it will sufficiently supplement their pension shortfall.

“We have observed a contrary trend when life planning for clients. Most of our clients in the UK do not express reliance on inheriting their parents’ assets, nor do they aspire to be dependent on such inheritances. Most people feel uncomfortable about ‘profiting’ from their parents’ deaths.

“Relying on inheritance to finance retirement can be deeply concerning, as there are factors beyond one’s control. The uncertainty surrounding a parent’s lifespan and health-care needs makes it risky to rely solely on inherited assets.

“Unlike certain countries where inheritance is safeguarded, the UK does not guarantee automatic inheritance rights to children, allowing individuals to allocate their assets as they wish. This raises two critical considerations for those depending on inheritance: ensuring sufficient value remains in the estate by the time you need it and confirming the parent’s intention to pass it on.

“Ultimately, depending solely on an inheritance assumes either having wealthy parents who will not need the assets themselves, or embracing significant financial risk.”

Cash-flow planning

Claire Trott, divisional director – retirement and holistic planning at St. James’s Place, stresses the importance of cash-flow planning for retirement rather than relying on an inheritance.

“Inheritances are rarely guaranteed, especially with regards to timing,” she said. “It isn’t something that you can influence either. This is where using inheritance for retirement planning is flawed. In current circumstances, parents may well still be healthy and active individuals when their children would ideally want to retire.

“It is difficult for the parents to gauge how much money they will need in their lifetime, so gifting is a difficult decision to make. It then all leads to needing to plan for your own retirement, dismissing the possibility of inheritance, at least in the early years of retirement.

“Cash-flow planning is a really good way to establish if you will have sufficient funds to retire at your chosen time. Things can change but it will give you a goal to work towards that can be incrementally adjusted as and when you review the plan.

“Plans should always be reviewed on a regular basis and stress tested against your goals. This will give a good indication and hopefully the right encouragement to save sufficiently. If there are some guaranteed funds in the future, these can of course be built in, but they must be guaranteed or will give false outcomes.”

Stumbling blocks

George Howard, chartered financial planner at The Fry Group, added: “I think a lot of Brits anticipate receiving an inheritance in the future and are relying on that to fund their future life, for example by repaying mortgages or providing an income in retirement.

“One of the biggest stumbling blocks in this way of thinking is that inheritance is not guaranteed. What happens if the parent(s) exhaust their assets during their lifetime(s), or the inheritance doesn’t come to fruition for whatever reason − what will they have to live on or support their lifestyles then?

“Another factor often ignored is the timing of inheritance – you may wish to retire at a certain age, so what happens if you have not received your inheritance by then? You may have to adjust your financial plans, especially with people today living longer.”

“While it depends on the circumstances, it is never usually advisable for someone to rely on an inheritance for any reason. There are a number of factors that could affect this, such as family disagreements and disinheritance; the donor spending all their money instead; the donor leaving it to someone else or to a charity instead; the timing of receipt of the inheritance misaligning with your planned uses of it; or even losing money through divorce or blended families.

“We would usually advise that individuals build up their own provision for retirement through a diversified portfolio more capable of providing an income sustained throughout retirement. It is commonly considered that individuals need capital of 25 times the income requirement per annum at retirement (if invested in a diversified portfolio) to provide for a 30-year retirement, also known as the 4% withdrawal rule. Any inheritance should be seen as a bonus on top of a safe and secure future that individuals build for themselves.”