7IM’s new retirement income solution challenges the status quo

Transcript

Bella Caridade-Ferreira

If this your first time on the podcast. Welcome. You can subscribe to it on all good podcast platforms. Today we’re going to discuss 7IM’s new retirement income solution, which is a radically different solution from anything out in the platform industry today. With me in my studio, I have Verona Kenny, MD of intermediary business at 7IM and her partners in this project, retirement specialists, Just, represented by JP Grenade, director of retirement income distribution, and investment partners in the project, RBC Brewin Dolphin, represented by Antony Champion, head of intermediaries, and EQ Investors represented by Dale Scorer, investment consultant.

So welcome everyone and I love the diversity of this podcast. Lots of different nationalities, lots of different names from all over the world. Verona, this retirement solution is unique and groundbreaking. So can you give me a brief rundown of your retirement income solution, what the genesis for it was and why you developed this now.

Verona Kenny

Amazing. Thank you, Bella, and thank you for calling it unique and groundbreaking. That’s how we like to describe it as well. So the genesis of this idea is actually that something that we were doing about four and a half five years ago, pension freedoms happened and under the discretionary side of our business, we had a lot of clients that were paying for flexible return and income. So we developed something way back then that we thought was really unique and really different and that is a bucketing approach to making clients money go as far as it can to give them the retirement that they want. We’ve been actually walked back to the market and we have lots of lots of feedback that this is exactly what the market needed. So we thought, OK, we’re going to put on the platform, but our thinking is wider than because we actually thought that what clients and advisers need is not just one solution from one provider and they need the most flexibility that they could ever dream of for their clients when they’re paying retirement income, hence the reason we started working with our partners that are all here today and I think that’s one of the most exciting things about this. It’s not to 7IM. It’s giving me. It’s we’re showing the industry that we can work together.

Bella Caridade-Ferreira

So what problems are you solving for advisers? You know, just talk me through that a little bit please.

Verona Kenny

No problems at all, right? The problem solving is actually what client will come in and social advisors when they’re about to do their return income plan. I can bet a billion dollar that most clients, when they come in to talk about retirement income and how they’re going to invest their money. Their first question is not going to be “what’s my exposure to US equities?” The first question that we get asked is “do I have enough money?”, “Can I have the retirement of my dreams?” Can I go on holidays, Can I maybe even leave some money to my lucky, lucky kids and grandkids? That’s what people want to know.

Right, they’ve earned their money over 40-50 years. And now is the time to make sure it lasts. So that’s what we’re trying to solve for advisors. But we want to do that in a very past, robust, repeatable way that has a lot of slight sitting behind it to actually show the clients that yes, you can have this retirement. And, you can maybe have a bit of a guarantee that you can keep your money invested. It can work for you, and you’ll be able to achieve everything that you want to achieve. So that’s really long answer to say that what you’re trying to help advisors and their clients with, is that question, “do I have enough?”

Bella Caridade-Ferreira

Well, I suppose I think the interesting point there really is that your retirement income solution works across all products, doesn’t it? So the buckets can take from ISAs from pensions and also, you know, provide a guaranteed income, so that’s quite unusual. Is that done on any other platform?

Verona Kenny

We don’t believe that someone on the other platform, and yes, we have taken a completely holistic approach, a client will have money in general investment in an ISA, in a Sipp, maybe even a bond. So why in the past we all said retirement is actually just all down to the hard work of the SIPP? It’s not. It’s about pulling everything together and giving them more flexibility.

Really all of those wrappers are there to, you know, for tax efficiency, for inheritance, tax planning. And there’s really valid reasons, those reasons even more valid when someone gets into retirement. And so it’s absolutely critical that the solution works across all the wrappers.

Bella Caridade-Ferreira

Well, that’s great and it’s certainly a good reason for advisors to be interested in that solution because you need that flexibility, don’t you? So look, turning to JPR, I really want to talk to JP now. Look, low interest rates made annuity seem really poor value while investment performance was strong. So Decumulation became or, you know, drawdown became the strategy of choice. But last year’s volatility and rising interest rates are prompting advisers to look at annuities more closely, right? But annuities and investment plans don’t usually mix so. How do you how?

How have you had the genius idea of putting an annuity in a sip wrapper, and how does that work? Because it sounds really complicated to me, JP. So if you can talk me through how that works and how that would be great.

JP Grenade

Yeah, sure. No problem, Bella. So. A few years ago, Just was looking at how can we incorporate some of the very positive elements of annuity provision while taking away some of the things that people don’t like about annuities. So one of the things that people I think really particularly didn’t like about annuities. It was kind of kind of felt like a bit, all or nothing. You either you take all of your pension pot and you buy annuity and that’s it. By incorporating an annuity onto platform, what it enables us to do is to say you don’t have to annuitize your entire pot. What you can do is you can take some of that money, and if it’s on a platform, you can use it alongside retirement investment strategy and it can help to address some of the things that, cannot be addressed or more difficult to address without using something that’s got a mortality cross subsidy. So for example. If you’ve got exposure to fixed income right now, especially yesterday, you’re probably not particularly happy because rates have increased. Annuity providers are able to enhance the outcome to customers. So one of the things that we’re able to provide is that longevity risk, we can provide a hedge against longevity risk to the dangers that effectively you live too long. The other thing that we can help do is dampen some of the sequencing risk that you see in post retirement investment portfolios, which is a risk that you just don’t need to care about in a growth portfolio. So those two things combined. So the sequencing risk and the longevity risk. We’re able to support through using the secured lifetime income product. So that’s what it does. And then technically to answer your question about how does it work effectively, is it well, although it’s similar to annuity, it’s not actually an annuity, it’s a trustee investment plan that’s available through the 7IM platform. And therefore there are some. Other additional benefits. So for example. Although secure lifetime income will spit out an income every month, you don’t have to draw that income. It goes into the platforms cash account. So one of the great things about having it on the 7IM platform is that advisors have got some optionality around what they do with that income. If customers don’t need it, they can reinvest it across the rest of the portfolio.

Bella Caridade-Ferreira

They can reinvest it. That’s even that’s even better. Then, really, isn’t it? Cause it because it hasn’t completely come out and they’ve received the money. It’s on platform, don’t need it this month. Stick it back in and Bob’s your uncle. That is really, really cool. And you’re absolutely right about the whole annuity thing, because to a certain extent, what advisors want is they want to have that cushion, don’t they? They want to know. I’m going to neutralise part of the pot to provide that minimum basic income that I’m going to need over, you know, the next 40 years or whatever. And then the rest can be the nice to haves. So that’s great one. One last question JP, is this the first time you’ve embedded an annuity in a SIPP? Don’t I don’t think it happens anywhere else, but maybe you can update me?

JP Grenade

So SLI is available on only two platforms at the moment. And it is, yes.

Bella Caridade-Ferreira

You don’t need to talk about the other one.

JP Grenade

No, absolutely. And it is it. It does have that advantage of. Effectively because it’s on the platform, meaning that an advisor doesn’t need to manage something separately. They can see everything on the platform. There is a death benefit as well, which you don’t typically get with a with an annuity, so there are certain advantages, so some of the things that we knew people didn’t like about annuities we really thought about and said OK, well, what can we do to mitigate some of those things and how can we make that better? And the other thing that I think is quite interesting is because you’ve got a guaranteed income. Because that income is typically higher because it’s got a cross mortality subsidy. It means that the rest of your portfolio doesn’t have to sweat as hard to deliver their income. So that means that they can be taken up by the rest of your portfolio can be a bit more risky.

Bella Caridade-Ferreira

Exactly so. And that is. It can be a bit more risky, exactly. That was the point I was making. Like you know, you provide that basic stuff and then it can it can, it can be invested. In a bit more adventurous way. Which leads me on nicely to my next questions really, which is about the investment partnerships that Verona and 7IM have made. So you’ve partnered with RBC Brewing Dolphin, and they’ve been, they’ve been running portfolios for at least 12 years, or model portfolios, and EQ Investors who specialise in sustainable investment. So Anthony, it’s safe to say that if anyone understands model portfolios, it’s RBC Brewing Dolphin. So it’s quite a of mouth for now.

Antony Champion

It’s easy, it’s easy. It is. It is.

Bella Caridade-Ferreira

Uhm, but I suppose the emphasis here is really on managing money in decumulation. Am I right? That’s much trickier to sort out.

Antony Champion

It’s true, it is. I mean, discretionary managers have been running sort of drawdown type services for clients for decades off platforms. As you say, we’ve been running model portfolio for 12 years and with pension freedoms it brought it took it to another level and one of the biggest challenges for people running model portfolios was you couldn’t really give the same level of flexibility that you would get off platform through a normal discretionary service. Verona’s proposition, because of their background in discretionary management brings that to the fore. And that’s what is exciting about this, you know, just hear from JP, we can offer across a range of solutions and that’s why we’re excited about it. And I think our models we’ve got a some really strong positive performance will work alongside Dale and JP’s services within the platform. That and this service that Verona has built.

Bella Caridade-Ferreira

OK, sounds great. Talk me through some of the practicalities, the retirement income solution works across different wrappers and pots, different pot, you know, short term, medium-term, long-term pots. Et cetera. Does that pose a challenge for you in terms of how you manage that, that money.

Antony Champion

No, not at all. We’re used to running these things in various wrappers. So Verona and the team, we’ve worked very closely with us to ensure that it’s as frictionless as possible for both us running the money and ad ultimately for the, for the advisor to make those investment choices.

Bella Caridade-Ferreira

That’s great. And how many models are available? I mean, how many are you going to put on, have I? Have I asked you a difficult question?

Antony Champion

We’ve got currently we’ve got our 7 main models on there. And I think depending on advisor demand and everything else we can add, we can add our passive pluses and everything else if necessary. But we will see how that progresses with Verona and the rest of the team.

Bella Caridade-Ferreira

And I suppose that means that you can sort of, you know, with your short-term pot you can sort of take a more cautious approach and then with the sort of long term, I’m not going to need this for another 30 years. You can go all out and high risk and I think that’s the beauty of it.

Antony Champion

It is, that’s the flexibility. I mean it ultimately is that we’re just here to run the money. It’s down to the advisor to make those decisions and choices with their clients as to what they need? And that’s the great thing about this, you know. They can move across that, you know more into JP XYZ it it’s the sort of thing that we can do on an off platform discretionary and we, Verona and her team brought it onto a platform.

Bella Caridade-Ferreira

I mean, it all comes back to, doesn’t it? Giving the advice of that flexibility because they don’t want to go off platform and manage an annuity. They want to do it all in one place. See the income, move it around. If they need to move it to different pots. So I totally understand that. Dale, I’ve saved the best person till last. So look, I mean, EQ has got an amazing reputation as an ESG, investment solution provider and that’s all the rage now. And you’ve been doing sustainable since before it was fashionable though, so. So tell me a bit more about what you’re doing and how you think you’re going to make a difference here.

Dale Scorer

Well, thank you for feeling that we’re the best to last. So we feel very privileged for that. But you’re absolutely right, Bella, at the moment, sustainability does seem to be a bit of a catch phrase and a buzzword that’s going around, and this is what makes EQ different. We haven’t just decided to jump on the sustainability bandwagon because it’s become fashionable recently. We are a B Corp DFM that specifically specialises in sustainable investing, and we’ve been in the sustainable investment space and supporting advisors in the sustainable investment space for over a decade now. And for a long time, EQ has acknowledged that sustainability is likely to become increasingly important to advisors and their clients, and where the clients are in accumulation or decumulation their sustainability preferences should be achievable and indeed accessible. Right? And that’s exactly where we fit in here. We’ve partnered with 7IM we have a number of sustainable portfolios that range from climate change to sustainability leaders. But at the moment, actually our most ambitious, sustainable portfolios available through the retirement income solution. And these are our positive impact portfolios. And as I said, the most ambitious. So they’re not only investing to avoid the worst offenders, but they’re focusing on investing in companies that are providing solutions to some of the most pressing, global environmental and social challenges we’re facing today, so it gives advisers the opportunity to allow their clients to have the sustainability preferences in mind, avoiding harm, but also investing for a positive impact and driving real change in the world.

Bella Caridade-Ferreira

And that’s and that’s really, really important, isn’t it? Because you. Know it. There’s a lot of people jumping on the bandwagon and doing a lot of green washing, right? But you know, with your credentials that makes it much, you know, it’s part of your DNA and I think that’s really important to people to see that. How many portfolios will you have? You’ve talked about how many you’re putting on. Are you going to be adding more as time goes on?

Dale Scorer

So I think how much like Anthony was saying depending on advisor demand. We actually have 3 Portfolios in the sustainable space. And at the moment I’m most ambitious is up there, but we also have a passive strategy and a strategy that focuses on climate change. So depending on the demand and of course. You know the. The relationship with 7IM and how much more they want from us. We’re happy to give more.

Bella Caridade-Ferreira

They want more. But look, actually the other point, Dale is you know, in if we talk about consumer duty, OK, this is also advisers, everyone’s got to sort of show how they provide value and I would imagine that you know by using your… one … You know, if you’re, if you’re an advisor and you’re using this retirement income solution, that’s unique. That’s a way of providing value. But also ESG is another way. Can you talk me through what you think about, you know, the consumer duty side of that?

Dale Scorer

Absolutely. I mean consumer duty speaks about putting clients needs 1st and delivering good outcomes for retail clients, and I think this is exactly what the 7IM Retirement Income solution does, it really focuses on the decumulation needs of clients. And I think you know, it helps advisers to very easily demonstrate that they have a different strategy that provides for decumulation compared to the accumulation needs, and that is a huge value add to clients and on top of that advisors are also able to say to clients you know if sustainability is your preference, we’re able to cater for that need as well. Whether you’re in accumulation or decumulation, it doesn’t affect the strategy, and so I think the partnership really shows a good way of sort of putting the clients needs 1st and trying to create good outcomes for them.

Bella Caridade-Ferreira

Great. That sounds wonderful. So advisors, if you’re listening to this podcast, remember Consumer Duty assessment of value, flexible retirement income, ESG, it’s all there. So it’s a really, really good point for you to incorporate into your into your consumer duty tasks. Verona, coming back to you. I believe that Brewin and EQ are your exclusive investment partners. Are there any other plans to bring on other investment providers?

Verona Kenny

Firstly, let me just say we really happy with our chosen partners and I’m not just, you know, we didn’t pick these guys just because we like them. Of course we like them, but we went through a very extensive due diligence process to select to select those departments, to make sure that you know that they will. You know, they can fit perfectly, and seamlessly, within our own solution. In regards to your. It is exclusive where we have others. Again, always concern to advisor demand. But right now, we’re so focused on making this successful for the partners that we’ve chosen today.

Bella Caridade-Ferreira

Well, that’s great, but I can I ask a bit more about the investment selection process because it’s the kind of thing that the advisors want to know, you know, cause they’ve you know, sometimes they go, oh, yeah, they’ve just picked the people they were. So you know what, what did you look at, you know, did and they just pick the people they like what? You know, once you. Once you look at you look at. Presumably performance, the breadth of the range you. You know, talk. Me through that a little bit if you can.

Verona Kenny

Yeah, it was.

It was actually more of a science, it wasn’t just oh they’re performing, let’s put them in. It actually went back to what are the capital market assumptions? How does that map to the bucketing strategy? So it was a lot more detail though we got a whole team of people in our office. There are lots more than me that went down to like a lot of detail with these guys to map their investment model portfolios into our buckets that sit withing ours.

Bella Caridade-Ferreira

Ohh that’s really interesting. So you went right back to capital market assumptions and made sure that that it’s so it’s science rather than an art kind of thing.

Verona Kenny

Absolutely right. This is all based on science. We have to put them through the multicolour simulation that sits below the bucketing the scenario, planning all those kind of things. So I know if they said we just picked people that were like, yeah, no, it was, it was the science. We were led by the science and then. Luckily, we do like them as well.

Bella Caridade-Ferreira

That’s fantastic. And presumably you’re going to introduce a sort of a will. Will there be an assessment after 2-3 years to ensure that, that you know the portfolios are delivering against those buckets and et cetera, In the future?

Verona Kenny

Absolutely RIS is not one and done. Sorry to you know, we are going to continue to work on. Return income service. We’ve got more of the IT enhancements that are coming in a couple of months. Yeah, this is low Ground Zero, but it’s exciting is all the good stuff that we’ve got coming up.

Bella Caridade-Ferreira

It sounds incredible. It sounds incredible. So I’m going to, my last question really cause I’m conscious of time and we the my last question is, is really to your three strategic partners?

You know you are all established companies in your own rights with, with lots of expertise. Why did you decide to work with 7IM on this solution. What was it about the solution that got you excited and involved? And I’ll start with you, JP.

JP Grenade

Thanks, Bella. So we’ve got a great relationship with Verona and her team. We’ve been talking for what more than a year now, I think, about our retirement solutions and how we can join up, so it felt like an incredible opportunity for us to work more closely with 7IM, strengthen our relationship and really getting a, a proposition out there that genuinely supported advisors in something that’s an incredibly complex space where we felt they were massively underserved, so it’s great to have a partner like 7IM that we can work with to ensure that those customer needs are, are being met.

Bella Caridade-Ferreira

And have you had anyone else come to you, JP and say. Ohh, can we do what you’ve done with 7IM? Because if I was another platform, that’s exactly what I would be doing.

JP Grenade

Not yet, but I’m sure they will eventually.

Bella Caridade-Ferreira

And Anthony, what about you? So, RBC Brewin Dolphin, huge company.

Antony Champion

Yeah, it’s all about choice. It’s all. It’s all about providing choice to advisors. And as I said, you know we’re able to do drawdown in discretionary management but doing it on a platform has always been a challenge. And you know, we’ve been speaking to Verona about this for probably. Well, it seems like forever, but probably about 18 months, two years. And why wouldn’t you? You know, it’s a great opportunity. The output for the client and the advisors is excellent. It takes everyone to the next level. So excited.

Bella Caridade-Ferreira

That is, it is an exciting opportunity and Dale? Over to you.

Dale Scorer

I think first of all I must say a huge congratulations and well done to 7IM for doing such a great job in really pushing the industry and providing a solution like this. The industries needed something this like this for a long time. Where we’re specifically focusing on clients, decumulation needs and putting it at the heart of the strategy. So I think it’s extremely exciting and as a partner, we’re very excited by the prospect of the solution and what it means for the industry, and we’re tremendously proud to be the sustainability specialist that sort of available within such a unique offering.

Bella Caridade-Ferreira

Ohh that’s great. And to be honest I couldn’t have said it better than better myself. So I think that’s an absolutely brilliant place to end there. So I’d like to thank you all for taking part in this podcast and explaining the. 7IM retirement income solution and hopefully our advisors will enjoy hearing all about it. Thank you very much, thank you.