4 min read 8 Mar 21
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Our latest survey on centralised retirement propositions has shown that - when it comes to planning in retirement - firms are increasingly interested in adopting a centrally agreed approach to cashflow modelling, determining income withdrawals and assessing client risk tolerance.
But what are firms’ preferences for investment strategies for their retiree clients? Below, we take a look at what our research findings, conducted across 200 adviser firms in partnership with consultants NextWealth, are telling us about investment approaches in retirement planning.
Total return strategies continue to be the most widely used investment approach for clients taking retirement income. As ultra-low interest rates and dividend cuts take their toll on pure income investing, just 15% of firms say they never use a total return approach for retirement clients.
‘Bucket’ approaches – where the retirement client’s portfolio is divided between, say, cash, intermediate and growth asset portfolios – are also gaining ground, being used by 41% of firms most or all of the time. An income-driven approach, however, is widely used by just 27% of firms.
In terms of investment structure, multi-asset or multi-manager funds are used by over half of firms. But perhaps surprisingly, outsourced discretionary fund management (DFM) portfolios – both model and bespoke – are currently used by only a quarter to a third of advisers for retirement clients.
This could reflect the limited number of compelling DFM propositions specifically for clients in decumulation. Reconciling an outsourced service to each retiree’s specific tax management and income withdrawal needs may also present challenges. But with advisers needing to serve a growing bank of retiree clients, we’d confidently predict that the range of outsourced discretionary retirement solutions will grow.
Another surprising finding is that the percentage of advisers recommending a different set of fund choices to clients once they move into retirement has fallen from 70% in 2020 to 58% this year. This may reflect the growing use of total return strategies both before and after retirement (which largely eliminates the need for a change of funds) and also a preference for gradually adjusting portfolios rather than making wholesale changes.
Similarly, only 14% of advisers recommend using a different platform or providers for drawdown clients versus accumulation clients.
Use of illiquid funds has also fallen. With several property funds being forced to suspend redemptions in the face of liquidity problems this year, half of firms that use illiquid assets have reduced their allocation to these previously popular sources of income yield. It will be interesting to see how and if demand for property funds for retirement clients recovers post-Covid 19.
Another trend we’ll be keen to watch is the demand for responsible investment among retirees. Despite the intense industry and media focus on ESG, ethical and impact investing, advisers say such topics are only raised by retirement clients in an average of 14% of conversations.
With responsible investing firmly on the FCA’s agenda, we look forward to assessing in future research whether it become a greater priority for firms’ retirement propositions – and for retirees themselves.
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The information contained in this page is for professional Financial Adviser use only. If you are a private investor, please visit the Private Investor section or contact your Financial Adviser for more information.
The feedback since launching our CRP research shows a need for more practical information and best practice. So, we partnered with NextWealth and have spoken with expert outsourced paraplanners to create this guide to help, whether you're building, implementing and maintaining or reviewing.