OMGI warns of ‘dearth of innovation’ in decumulation

Victoria McKeever writes

There has been a “dearth of innovation” in investment solutions created for the decumulation stage, with many providers “repurposing” accumulation products instead, Old Mutual Global Investors (OMGI) has said.

The firm’s multi-asset co-director Anthony Gillham warned this was a problem as decumulation required a “completely different investment mindset” due to the different set of risks involved in retirement.

Investors were much more vulnerable to ‘sequencing risk’ in decumulation for instance, as they cannot recoup losses from sharp market dips in the same way as in accumulation, he said.

The aim in decumulation therefore was to minimise the impact of those market dips.

Research from OMGI found that, from 2000 to 2017, if an investment manager was able to mitigate a third of the market dips over the worst five months in that period, £100,000 would be worth £37,599. However, if they were able to mitigate a third of the worst market dips in 10 months of that 17 year period, this portfolio would be worth £69,204.

Gillham (pictured) said: “There has been a dearth of innovation in decumulation investment solutions, yet it needs a bespoke investment solution, as retirement presents a different set of risks to those in the accumulation stage of investing.

“In the accumulation of wealth the focus is on the destination towards retirement. However decumulation is about making that money last so it’s about making the journey as smooth as possible for the client.

“So I’m surprised, especially given the Financial Conduct Authority’s (FCA) reference to this issue in the retirement outcomes review, that more investment providers have not released more decumulation products.”

Last month the regulator released its interim retirement outcomes review, saying it was concerned about the state of the increasingly popular drawdown market.

The regulator said: “We will gather evidence on whether consumers pay high charges and have ended up with unsuitable investment strategies.”

The FCA already raised concerns in April about a “blurring of the line between accumulation and decumulation”, which threatened to make it harder for market entrants with new decumulation products to challenge the handful of providers that dominate the market.

It warned this could lead to a focus on “consumer retention at the expense of product innovation” among existing providers.

OMGI re-launched its own decumulation product, the Old Mutual Generation Portfolios, in October 2015 as part of a number of revamps to its multi-asset range.