If an adviser is looking to invest in decumulation pots on behalf of a client, then Thesis Asset Management says there are five questions they must ask themselves before opting for the approach.
Thesis believes there is a growing trend for advisers to take on more work themselves and manage the investments of their clients in retirement through separate pots.
Multiple pots approach
The asset manager notes that, to help mitigate the risks of decumulation, advisers are using a long-term pot, which has a high level of risky assets to deliver growth, and a shorter-term pot, which can be relied upon to deliver the cash to meet regular withdrawals.
Thesis further believes that there has been a lack of innovation in the retirement space and, as such, the multiple pots approach looks attractive to both advisers and clients.
“According to research, clients are attracted to multiple pots with 79% happy to see their retirement strategy in multiple pots,” said Thesis.
However, this approach can also be very time consuming to administer and introduces implementation risks for the client.
Five questions
As a result, Thesis has produced a list of questions advisers should ask before considering this decumulation pots approach:
- How much and how long do you leave money in short-term pots, what is the optimum time and amount?
- How much is needed in equities for the long run to manage inflation and longevity?
- Am I consistent with all clients, ie is there a clear approach which all advisers follow?
- How do I make changes for clients needing the same thing at the same time with an advisory model?
- Do I want to have responsibility for big asset allocation decisions and if I do how do I implement it quickly, consistently and fairly for all clients?
Lawrence Cook, Thesis’ director of marketing and business development, said: “With pension freedoms now well embedded, there is much discussion about the best way to ensure we do not run out of money in retirement.”
Cook said, while there are many options out there in the market for advisers and consumers, it is the multiple pots approach that seems to be the most effective in addressing the risks investments face in the decumulation phase.
“The pots approach is in effect a method of providing some fire insurance in case the worst happens in the short term and leaving enough in riskier assets to ensure clients do not outlive their wealth.
“The challenge then is to mechanise the delivery of a service so that advisers can service more clients and clients can gain greater comfort that their wealth in retirement will last,” Cook said.
