The independent financial information and technology business, Defaqto, has published its latest CPD accredited guide: Using drawdown to provide a sustainable income.

The extensive guide is full of key facts and tips to help advisers research and provide compliant recommendations.

Split into two parts; the first half covers the advice process and the second focuses on the retirement support and solutions offered to advisers by Royal London.

Covid-19 has created the perfect storm of falling capital values combined with income drying up due to dividend suspensions and reductions, creating a greater need for advisers to sharpen their focus on risk and sustainability.

A tailored investment approach

The current climate has further highlighted the need for advisers to take a more tailored approach to clients’ investments. It is not uncommon for advisers to recommend investment strategies designed for accumulation to clients in need of income.

However, accumulation and decumulation are very different needs. And it may be better to offer the two strategies, which can often take the form of a separate CIP (Central Investment Proposition) for accumulation and a CRP (Central Retirement Proposition) for those clients needing income.

Specifically, there are two key areas discussed:

Attitude to risk (and capacity for loss) questionnaires

  • Accumulation questionnaires are unlikely to sufficiently consider sequence risk or income sustainability.

Investment strategies

  • Accumulation strategies focus on maximising returns for a given level of expected total return volatility. Decumulation strategies focus on achieving income sustainability over the duration of retirement within a defined level of confidence, subject to a certain level of sequence risk and withdrawal rate.

David Cartwright, head of insight and consulting (Wealth & Protection) at Defaqto says, “We may be living through unprecedented times but thoroughly explaining and assessing risk has always been key for an adviser to provide suitable advice. Many clients, currently in or approaching drawdown, will be feeling vulnerable and advisers should keep in mind that the attraction of a strategy more tailored to providing a sustainable income for life may become the overriding need.

“Our latest CPD guide, created in partnership with Royal London, looks to arm advisers with an in-depth understanding of how to provide suitable advice that results in sustainable income. Not only by giving a detailed explanation of how to review risk but also how to tailor the approach to both accumulation and decumulation.”

Further reading

Is it time for advisers to get ‘hyperpersonal’ with clients?

Six skills successful modern financial advisers share