Retirement scenario planning

The FCA's recent review of retirement income advice revealed a range of practices among advisers in the market. While some firms demonstrated detailed and constructive processes, the FCA noted that not all were sufficiently considering the evolving needs of clients during the decumulation phase compared to accumulation.

The complexities associated with managing clients planning for decumulation, or those in drawdown, are growing and are likely to face increased scrutiny in the coming years. Nonetheless, there remains strong demand for such services.

Albemarle Street Partners have built a unique set of portfolios tailored to the specific demands of advisers to better address client decumulation needs. Complementing this, we have developed technology tools to enable advisers to have more informed client conversations and provide evidence for due diligence.

Our portfolio illustration tool offers a simple, quick, and easy approach to assess the suitability of an investment portfolio managed by Albemarle Street Partners, alongside other client retirement income sources. It simulates growth and income scenarios based on data input by the adviser. For this article we have used example client; Jane Jones.

The adviser has the flexibility to input different contribution

patterns over time, including regular income, lump sum payments or state pensions, as well as various drawdown scenarios such as regular income or gifts. This allows for simulations that illustrate how a client's future expectations and actual circumstances could impact the probability of financial stability during retirement.

Our tool tackles important considerations by allowing for inflation adjustments to contributions and withdrawals, which is crucial during periods of rising prices. The projected simulations account for returns after deducting fees charged by Albemarle Street Partners for discretionary investment management services. Advisers also have the option to include additional product or advice fees.

At the core of the tool is Albemarle Street Partners’ asset class risk and return forecasts, which combine long-term historical and forward-looking data, tailored for each risk profile, based on the underlying asset allocation selected by the adviser. This method offers a rigorous approach to future planning compared to arbitrarily choosing an estimated portfolio return, resulting in more dependable projections aligned with the current economic cycle.

Client feedback has underscored the importance of portfolio projections and risk analysis. Portfolio projections assess the likelihood of sustaining client funds throughout their lifetime, providing advisers with increased confidence in helping them achieve their financial goals. Meanwhile, risk of ruin analysis evaluates the probability of a client's portfolio being depleted under various market conditions, facilitating more sophisticated discussions on income protection strategies.

Past performance is not a guide to future performance. Capital at risk. Investors should be aware that the price of investments can go down as well as up and that neither is guaranteed.

Although the FCA’s review did not directly assess findings against the Consumer Duty, it highlighted the necessity of evidence-backed outcomes, particularly for vulnerable customers. 

Our tool serves as a comprehensive solution to evaluate client suitability, support ongoing reviews, and demonstrate effective decumulation strategy evaluation. We welcome feedback from advisers so we can continuously enhance our technology, empowering our clients to make informed and effective financial decisions. 

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The information contained in this article does not constitute investment advice and you should not make any investment decisions solely on the basis of it. Forecasts for estimated returns are based on backwards-looking information and there is no guarantee that future events will not lead to a different path of returns.

We take our obligation to be true, clear, fair, and not misleading seriously. Please request a full report to understand precisely what is being done to generate the charts and figures. However, Atlantic House Investments Limited gives no warranty to the accuracy or completeness of the information.

Some of the language in these illustrations is technical, but we try to explain it clearly. If you do not understand something, or require further information please contact us.