Expert: Andy Sutherland, Director, Conduct Culture Ltd Facilitator: Michael Lawrence, Principal Consultant, Bovill
Headlines:
- Adapting risk assessments for clients entering the decumulation phase is critical, with new factors like sequence and longevity risk in play
- Combining secure income sources and flexible investments is increasingly important to balance income security with growth opportunities
- The Consumer Duty regulation underscores the need for transparent client communication and demonstrating informed decision-making
- Traditional fee models face challenges as clients’ assets decline, pushing for new approaches to sustain value and competitiveness
- Data-driven insights are essential to ensure consistent outcomes and support ongoing portfolio adjustments
Discussion points:
Assessing attitude to risk (ATR) for decumulation
Transitioning from accumulation to decumulation often alters a client’s attitude to risk, requiring fresh assessments to consider income stability, inflation, and volatility.
Current risk profiling tools may not fully capture these evolving needs, with many designed solely for accumulation phases. Advisers questioned if new tools or strategies were needed for decumulation.
Blending secure income with flexible investments
Delegates explored the benefits of combining secure income sources (e.g., annuities, pensions) with flexible investments, enabling a more aggressive investment approach supported by a secure income base.
While blending strategies are promising, regulatory compliance and commercial buy-in remain key hurdles.
Consumer Duty and managing client expectations
Regulations emphasise the need for clients to fully understand the advice and associated risks. A 'safety net' option that illustrates the cost of guaranteed income for essential needs was suggested to enhance transparency.
Ensuring clients understand the nuances of decumulation planning and its associated risks is central to meeting regulatory and advisory standards.
Adapting fee models for decumulation
As assets deplete, percentage-based fees may no longer serve clients effectively, prompting discussions around tiered or fixed fee structures.
The role of advisers in decumulation faces increased pressure from robo-advisers and workplace pension schemes, demanding a reassessment of the value advisers bring to clients during this phase.
Leveraging technology and data for client outcomes
Enhanced data collection and analysis tools are needed to monitor and adapt strategies in response to clients’ changing needs and market fluctuations, helping deliver reliable outcomes in decumulation.
Digital tools and data insights facilitate adjustments to client plans, ensuring that both financial and personal circumstances are consistently aligned with retirement goals.
Key takeaways:
- Explore risk profiling tools designed for decumulation, addressing the unique needs of this phase, including income security, volatility, and longevity
- Establish a framework for combining secure income with flexible investments to balance sequence risk and growth potential, ensuring compliance and client alignment
- Ensure clients’ comprehension of retirement strategies by offering 'safety net' options and thoroughly documenting discussions around risks and expectations
- Consider tiered or fixed fee models to better support clients in decumulation and address value proposition amidst the competitive landscape
- Invest in technology and data tools to provide consistent outcomes, enabling advisers to adjust plans based on dynamic client circumstances and market changes
