When it comes to advising on blended drawdown, as with any regulated product, suitability has to be key.
How appropriate is a blended solution for the client? Will it be right for both their short-term and their long-term needs? Questions such as this have been driving more people aged 55 and above to seek professional advice.
According to research from Retirement Advantage earlier this year, 42 per cent of people aged 55 and above said they were planning to seek financial advice at retirement, up from 38 per cent in August 2016.
So how best to advise this growing cohort – and how can advisers find the best possible solutions for everyone, at any and all stages of what could be a very long retirement?
Advice process
William Burrows, retirement director for Better Retirement, opines: “Simply put, it is good, old-fashioned advice.” He outlines this as:
• Discuss income requirements.
• Discuss attitude to risk.
• Discuss personal circumstances.
• Explore all the options.
• Don’t be afraid to challenge a client’s assumptions if they seem out of line.
“Good advice is an iterative process: adviser and client discussions can often go round in circles until the best solution is decided. You can’t robo that,” adds Mr Burrows.
Andrew Tully, pensions technical director for Retirement Advantage, points out: “Customers are not one homogenous group, so advisers will help customers work out their needs as they move through retirement, highlighting the risks they may face and how some can be mitigated.”
He comments that cash flow planning as part of the advice process can help customers understand their “future needs as well as their capacity for loss, if the model illustrates potential falls in investment markets”.
Ms Tait agrees the cash flow model is an effective way of assessing portfolio suitability.
She says: “Consideration must be given to the minimum income level which the client needs to meet basic expenses, how best to secure this and the degree of risk they can afford to take with their portfolio.
“This is done most effectively using a cashflow model which provides the client with a visual representation of their future income, and how their pensions and other assets can be employed to match the desired pattern.”
Developments
However, what might be right at point of retirement might not be right 10, 20 or 30 years down the line.
Therefore it is vital to review continuously the suitability of a client’s blended solution.
Mr Tully adds: “Markets, personal circumstances and needs change over time and therefore the appropriate retirement strategy needs to evolve and adapt to such changes.
“If left untouched for too long, the strategy could be inappropriate, and this could have a devastating effect on the long-term outcome.”
Femi Folorunso, senior consultant at Mattioli Woods, says: “You have to really know the clients to assess suitability for drawdown.”
