Investors in the UK are challenging the commonly held belief that they become more fiscally conservative with age, according to research by multi-asset boutique Seneca Investment Management.
Almost half (47%) of advisers surveyed said their retired clients are happy to have up to 30% of their savings fully exposed to the stock market via drawdown.
Worryingly, 34% of advisers reported that they have had recently retired clients willing to expose over a third of their savings to the stock market.
This is making life more difficult for advisers who need to balance their clients’ risk appetite with their income needs, leaving many struggling to find a sustainable solution that can provide both, the firm found.
An issue that is compounded by the increasing cost of retirement and expanding life expectancy.
Alternative solutions
Understanding what their clients want is helping 57% of advisers quantify the appropriate level of sustainable income for their later life, the survey found.
And while annuities and guarantees are ‘out of sync’ with advisers and clients, regarding a sustainable income solution, other options are emerging, according to Seneca IM.
One such solution is cashflow matching model, which sees advisers put client money in investments that will pay out the same amount as their liabilities.
It is based on risk profiles and cashflow requirements.
Risk does not mean risky
Steve Hunter, head of business development at Seneca IM, said: “The concern is that a significant proportion of current and incoming retirees are set to have less in their later life than their parents did, and this is only going to heighten as the pension freedom generation edge toward their retirement years.
“Our research suggests accumulation and decumulation are blurring, as advisers are telling us they are seeing some invested clients attitudes towards risk in later life increase rather than decrease, as is the traditional thinking perhaps fuelled by greater individual responsibility on creating sustainable levels of income over a longer period of time.
“However, taking more risk does not mean making risky investments, and advisers can help their clients by encouraging them to take more control of their retirement provision, staying invested in the stock market, and identifying the funds most suitable to retirees who want a step up in risk profile without the risk of wiping out nest eggs.”
The research was conducted by Censuswide, on behalf of Seneca IM, which surveyed 201 advisers.
It did not provide any information about the clients’ existing risk profiles.
