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How Open Banking could improve the quality of retirement planning advice

How Open Banking could improve the quality of retirement planning advice

27 September 2018

They say it is never too early to start planning for your retirement and, since pension freedoms opened a range of new opportunities for savers, being sufficiently prepared has never been more important.

The decisions that savers make at retirement could shape their income for the rest of their lives. The importance of which advisers are acutely aware of when they work with clients on their glidepath to retirement.

At our recent roundtable on Open Banking, the financial planners and advisers in the room told us that helping clients understand and prepare for how much they will spend in partial and full retirement is one of the biggest challenges they face.

People often think they will spend less in retirement but, in reality, their spending tends to remain the same in the early years. This is where open data initiatives can help. Open Banking presents an opportunity to use real time data to help investors understand how spending habits evolve in retirement and plan accordingly.

Imagine the depth of insight advisers and their clients can glean from seeing how and where they are spending their money? It would do away with clients having to go back over their records and meticulously tot up how much they have spent.

Not only that, but Open Banking data could be used to create new tools that coach people into improving their financial decisions by delivering just-in-time education and guidance as they spend and save.

Advisers told us that they could see the type of guidance provided to clients could change as people’s transaction data changes, for example when that client starts saving more.

Eventually, this could lead to more sophisticated solutions like investment advice, say for instance, after they have built up enough of an emergency fund.

These real-time reminders could prove far more effective than other methods in prompting people to save as they can be delivered at the most opportune moments.

Open Banking also introduces an opportunity for advisers to analyse large data sets to better understand spending behaviour. This analysis would allow firms to point to patterns to help clients understand typical spending behaviours. In a systematic way, the adviser could explain how other people have behaved financially in retirement and build suitable models from this.

Chris Daems, Director, Cervello Financial Planning

“We have clients where we have spoken to them as they are coming into retirement, they don’t know how much they are going to spend. This could truly test how much they are going to spend without them having to add it up every month- that is quite a benefit for the newly-retired individual. This could help them figure out how much they might realistically be spending” Chris Daems, Cervello Financial Planning – speaking at our recent roundtable event on Open Banking.

Not only can Open Banking increase the quality of retirement advice, it could also transform how and when this is delivered. By enabling advisers to collect data in real time, retirement planning can go from a static roadmap crafted at a certain point in time, to a more live dynamic process which can be automatically optimised when changes are detected in the client’s data. For example, by having direct access to a client’s banking data, the client’s retirement cash flow plan could be automatically adjusted when they receive a bump in income such as a pay rise. This new automation would not be at the expense of face to face advice but moreover act as a complement to it.

By improving the access and quality of the data advisers have to hand, this should surely translate into better quality advice also.

You can download our paper on Open Banking and all of our other whitepapers, by clicking here.

About the authors

Nick Parsons

Nick Parsons

Global Chief Technology Officer

Based in London, Nick Parsons has over 29 years of experience in the IT industry, specialising in financial sector solutions for fund managers and TPAs. Nick is Global Chief Technology Officer for Bravura, with responsibilities that include defining the Company’s evolving IT vision and strategy across the product range. Nick also leads the propositions teams in the United Kingdom, tasked with identifying and developing new opportunities in EMEA. He has been with Bravura since July 2007.

Simon Clare

Simon Clare

Head of Technology and Innovation (Wealth)

Simon Clare is Head of Technology and Innovation (Wealth) for Bravura Solutions, based in our London office. He is responsible for running and developing Bravura’s Innovation Lab, which has produced a number of powerful demonstrators showing how Sonata can integrate with and leverage emerging technologies such as Open Banking, Amazon Alexa and machine learning.

He has years of deep IT experience across software development, technical architecture and solution design.