Decumulation strategies ‘still in their infancy’

Jenna Brown reports

Decumulation investment strategies and products are still in their infancy and more innovation is needed to better serve clients, according to a panel of experts speaking at PA360 Digital.

Church House Investment Management sales director Sam Liddle and Insight.Out Financial managing director Jayne Gibson agreed decumulation options were, at present, limited.

Liddle told delegates: “Decumulation strategies are still in their infancy. There is a danger that accumulation carries on into decumulation. I am not sure there has been enough thought put into a wide enough range of decumulation solutions.”

Gibson agreed there had been a “lack of innovation”. She said: “There has been investment innovation but as an adviser, there has been very little innovation from a product point of view.

“In terms of risk, it seems to be all or nothing. For clients, really they are becoming more educated and want to be more involved. They are more towards the middle when it comes to risk.

“It is difficult to find a decumulation package – investment and product – that is cost-effective. There is a lot of work to do.”

Orbis head of UK retail Marcel Bradshaw urged advisers to explore using a mix of guaranteed income from annuities and the use of drawdown funds in their approach to decumulation.

Elsewhere, the panel discussed whether sequencing risk – where a retiree’s portfolio takes a significant hit in the first few years of decumulation and struggles to recover – is well enough understood.

Gibson said while clients were becoming more educated overall it was a bit of a “buzzword” in the industry and it was up to the adviser to explain and prepare clients for ups and downs.

“It is a difficult concept for clients to understand and it is important from an adviser’s point of view not paint a too positive picture. Clients should not be wearing rose-tinted spectacles,” she said.

Bradshaw added that advisers were now well aware of what sequencing risk can do to a portfolio but urged against being overly cautious.

“Advisers and clients need to be careful – if they put too much in cash, it is a drag on the portfolio. That is a concern. For me the fear is about being too conservative,” said Bradshaw.

Liddle added people without advice would be most at risk: “I doubt if people without advice understand the term or its implications. Advisers do and are helped by such things as Dynamic Planner who have a decumulation rating service. Increasingly advised clients will be well aware of it.”

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