Accepting some level of risk is a fundamental part of investing, but what happens when a client’s confidence is knocked?
It is easy to understand why anyone looking at recent market performance could be tempted to think again about where to keep their cash, especially if they are close to retirement.
The FTSE 100 generated returns of 5 per cent during 2022, for example, a time when inflation was running at 9.2 per cent. And during that time, it saw a number of sharp peaks and troughs in performance.
Against this backdrop, anyone approaching the end of their working life will have legitimate concerns about how best to preserve their pension pot.
As a client gets closer to that inflection point when they retire and accumulation switches to decumulation, market volatility can be a source of great stress.
So, how can advisers help moderate this risk and ease their client’s anxiety?
Accumulation proposition
Most UK advisers operate using a centralised investment proposition during their clients’ accumulation phase, which brings many advantages.
It means that companies apply a standardised method of selecting approved investment portfolios for all their clients, based on things like their appetite for risk, time horizons and preferences, such as sustainable investing.
Each portfolio will feature a mix of assets in varying weightings, which will be constantly monitored and regularly reviewed.
It is a top-down approach that provides a common set of guidelines around how advisers invest for their clients, which is what makes it so popular with companies and advisers too.
A standardised approach ensures consistency of advice across the company, helping ensure strong governance and compliance in a highly regulated market.
Having a range of packages that suit different classes of clients also brings efficiency benefits, as advisers do not have to start from scratch and create a bespoke package for every client, freeing up time to engage with clients face-to-face and build better relationships.
It also enables economies of scale that mean companies can charge lower fees, reducing the overall costs to clients, and making their offer to the market more attractive.
Tipping point
Quite simply, the aim of a CIP is to help clients accumulate the largest retirement pot possible.
Commonly, a portfolio would evolve over time, with an early focus on riskier equities, stocks and shares shifting to a more cautious portfolio featuring a higher proportion of fixed interest bond holdings as retirement approaches.
At the point of retirement comes the tipping point where a client switches from accumulating wealth to decumulation. That means switching from a CIP to a centralised retirement proposition, which is designed to help that pot last as long as possible.
Reducing risk
Much like a CIP, a CRP applies a standardised approach to retirement advice across a company and which typically includes investment and withdrawal strategies.
