Advising through the Ukraine crisis

Tip 1: Highlight the mantra that pensions are a long-term game

We all know that a pension investment is for the long-term, but some clients may lose sight of this amongst the various news flows.

Remind your clients that long-term history has shown that eventually, markets do recover.

You can use examples such as the Global Financial Crisis and Black Monday to highlight this point. It took markets 1,022 trading days to recover from the Global Financial Crisis, but over the long-term; being invested in the stock market does provide the opportunity for growth. 

Tip 2: Encourage clients to take advantage of market dips

Whilst clients are busy digesting all the headlines about global stock markets plummeting, some may feel tempted to move their money into cash or suspend payments into their pension altogether.

It’s important to highlight the benefit of investing more now to benefit from compounding over the long-term. Remember that the golden rule of investing is, there's only one rule, and that's ‘buy low’. 

Clients in the accumulation phase can have many years left before retirement and although the idea of remaining invested may be a scary thought for some, remind them that they’ll benefit from buying the lows and capitalise when markets do eventually go back up.

Tip 3: Refrain from making knee-jerk reactions to your clients’ plans 

Just like your clients, it’s important that you too keep a calm head throughout this situation and don’t make any unnecessary reactions to the robust plans you’ve put in place for your clients.

Remember that market shocks are to be expected every once in a while and are all part of the journey. There can only be one winner when trying to time the market. 

It might make sense to review the robustness of your investment choices and carry out some additional due diligence, but now is not the time to make sweeping changes to plans you've spent a lot of time putting in place.

Ensure that your investment process is robust and strong governance is in place to ensure it continues to meet its objectives. 

Tip 1: Remind clients they don’t need 100% of their pot immediately

There’s no doubt that the market volatility is a significant issue for those clients looking to retire shortly. This can be exasperated if clients want to move their assets into cash and effectively crystallise their losses. 

One of the simplest messages to relay to clients in this situation is a reminder that they’re very unlikely to need 100% of their pension pot as soon as they retire.

It might not feel that clients in this category are playing the long-term game, but they are to an extent, still long-term investors. And that means the benefits of buying market dips are just as relevant to them as for other client groups.

Tip 2: Emphasise the importance of your clients’ existing plans

You’ve already put plenty of work in to ensure your clients have a plan in place, which not only meets their individual needs, but is thoroughly robust.

This is a major advantage for advised clients over those individuals who are in the same position, but scrambling for advice. This should be at the forefront of your client conversations.

Tip 3: Stress the need for flexibility

It goes without saying that the market turbulence may trigger some unsavoury client outcomes. The stock market falls mean that some clients may not be able to retire as quickly as they’d like.

I’m sure a lot of clients won’t like this message, but highlighting the need for additional flexibility may be valued over the longer-term. 

Tip 1: Review your clients’ income sustainability

As markets swing on a daily basis, the impact of sequencing risk and volatility drag for those clients taking a regular income is huge. This can have a significant impact, not only on the capital generated to date, but also on a client’s ability to generate further income. 

It also highlights that when clients transition to taking money out of their pension, it’s not just a question about how their investments perform, it’s also a question about when their investments perform. 

As we know, there's no magic number when it comes to income withdrawal rates. Income sustainability depends upon a number of factors such as term, investment, charges and the level of income a client requires. Make sure you have a robust process in place to review your clients’ income sustainability.

Tip 2: Encourage income flexibility

It’s a sensible move to limit the amount of income being withdrawn during periods of market stress. In addition to income being reduced, don’t be afraid to discuss expenditure with your clients. Reducing current and expected levels of expenditure can improve income sustainability over the longer-term.  

If current and future income requirements have actually increased, have a discussion with the client and review their plan to determine whether they can take additional risk to achieve a more sustainable level of income.

Tip 3: Time to consider a centralised retirement proposition (CRP) approach?

The argument for adopting a centralised investment proposition (CIP) approach has been well documented and this approach has helped advisers deliver some excellent client outcomes in the accumulation phase.

However, the CIP model can be slightly limited once clients are withdrawing money, as the overall process doesn’t focus on things like capacity for loss, spending habits, sequencing risk and the sustainability of income withdrawals. 

Using a CRP shows you’ve recognised the different approach required for clients in accumulation versus drawdown. Like a CIP, they can be used to deliver a consistent and structured approach, but with a particular focus on clients’ different needs in this phase.

This is achieved through the use of an investment solution and product which is specifically designed for income withdrawals and of course, the use of associated planning tools focussed on income sustainability and sequencing risk. 

The use of CRPs are particularly relevant in a post PROD regulatory world where you’re required to prove the products you recommend deliver good client outcomes for your various target markets.