Financial services firm Brooks Macdonald has criticised the “superficial” coverage of pension decumulation as it looks set to join the ranks of firms offering the service to clients.
The solution will be available to those with a minimum of £500,000 ($651,000, €580,000) to invest – but a launch date is yet to be confirmed.
It aims to address the conflicting risks that investors face when approaching or beginning to draw an income from their investment portfolios.
Andrew Lewis, senior investment director and head of Wales office at Brooks Macdonald, told International Adviser: “There is quite a lot of coverage [about decumulation], particularly since pensions freedoms of course, but it tends to be rather superficial, highlighting the issues without addressing client needs.
“To date, we have talked about decumulation as providing income in retirement; but, of course, as a concept it could accommodate withdrawing funds to meet school or university fees, or a relative’s care, or any number of other expenditure needs.”
He also spoke about the existing products in the sector.
“We do not think it is a case of whether there are enough products but would question whether the products or solutions available are appropriate to meet clients’ specific retirement journeys,” Lewis added.
“For example, there are several ‘low volatility’ and ‘protected’ products which certainly address the shorter-term issues of sequencing risk, however we have concerns about the impact that inflation will have over longer periods.”
The firm said the service will be “different” to those in the market due to the way it divides the portfolio into two pots.
The first portfolio will invest into assets that specifically target the client’s exact income requirements through the first seven years of drawing an income.
The second portfolio will invest into a “normal” diversified and asset allocated portfolio, based upon the firm’s research, set at the client’s highest acceptable tolerance for risk.
Lewis said that the service would be suitable for clients starting their retirement journey as well as those already on it. “Consideration needs to be given to the size of the overall portfolio and the age of the individual, but it offers advantages to people throughout retirement.
“We recommend that clients, together with their advisers, start preparing for retirement as much as seven years prior to when they anticipate taking an income from their investment portfolios.
“However, there is potentially a benefit for those who have already started to draw on their retirement funds and those who are well into their retirement.”
The firm said that it is currently in active discussions with several adviser firms about the service.
“The feedback, following our soft launch with a small number of supporting advisers, has been extremely positive and we have learned some useful lessons for the full launch,” Lewis said. “For example, the importance of training and supporting advisers who are helping clients in or approaching the decumulation phase has been highlighted.
“We have also spoken to a wider base of advisers about our decumulation service at our adviser academies in January and February, and there has been an overwhelmingly positive response.”