There is no stand-out strategy that these advisers are using universally — they are basing their decisions on a combination of overall investment philosophy and individual client circumstances. “Advisers now have a lot more tools in their toolboxes to deliver good retirement outcomes,” says Richard Parkin, head of retirement at BNY Mellon IM.
Strategies need nuance
Some advisers are choosing a total return strategy: 14 per cent recommend it to all of their clients, while 27 per cent say they always recommend natural income. Others prefer a ‘bucket’ approach, which compartmentalises the portfolio into short-term, medium-term and longer-term components. This allows clients to draw down a certain level of their capital straight away while allowing the remainder to grow over time.
How often do you recommend the following investment approaches when advising clients investing for retirement income?
“We take a very strategic total return approach,” says Moore. “Our principle is that we're not here to preserve the capital. We're going to use it over a person's lifetime, and we're going to maximise the years where they actually get some meaningful use out of the money.”
Natural income, meanwhile, offers the potential for income to rise because of dividend increases, which can be particularly useful during periods of high inflation. Combining income-producing equities with high-quality bonds can lead to more balanced returns and lower volatility.
But natural income is not right for everyone. “If clients have already secured their minimum income, and they can afford to take a varying level of income thereafter, then natural income is great,” says Markwick. “But if you're asking a client to vary their income every year based on the natural income, and that may decrease below the amount of money they need, they will end up having to draw on capital.”
So developing retirement income approaches is nuanced, and advisers must take great care to consider individual client needs carefully. “Whatever solution you recommend will work for some, not others,” says Markwick. “You need to understand which client/ their personal objectives you plug into which type of solution.”
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