We all know that the decumulation phase of retirement planning is very different to the accumulation phase. The FCA also views these as two very different and distinctive stages.
Having a robust process in place to separate the two can only be a good thing and that’s where centralised retirement propositions (CRP) come into play.
A little CIP of history
The centralised investment proposition (CIP) was spawned from the Regulator’s ‘Assessing Suitability’ paper all the way back in 2012. In its broadest sense, a CIP allows you to deliver a consistent and repeatable investment process for your clients and its popularity has continued to go from strength to strength. The Lang Cat recently published research which highlighted that 82% of advisers have some form of CIP in place1.
The CIP process usually starts with an attitude to risk assessment with the output then matched to an optimum asset allocation. This is then mapped to a specific investment solution which can range from a multi-asset solution to a discretionary mandate. The process remains robust, structured and is subject to an ongoing review.
This consistent approach can help advisers deliver some really good client outcomes in the accumulation phase. However, the CIP model may not be a good fit for the decumulation phase because the overall process is unlikely to focus on issues like capacity for loss, spending requirements in retirement, sequencing risk and the sustainability of income – all interrelated issues and risks in the decumulation space.
Rise of the CRP
Using a CRP shows you’ve recognised the different approach required for clients in accumulation versus decumulation. Like a CIP, they can be used to deliver a consistent and structured approach but with a particular focus on the requirements and needs of clients in decumulation. This is achieved through the use of an investment solution 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 in decumulation are particularly relevant in a post PROD regulatory world where you’re required to prove the products you recommend match the needs and objectives of your target clients.
Putting into practice
Let’s use an example of sub-segmenting drawdown clients by their income needs. You may have clients requiring high, regular levels of income and/or some who require very little or ad-hoc levels of income.
A structured growth-orientated CIP may be appropriate for clients in the latter of these categories.
However, for those drawdown clients requiring a high or regular level of income, a bespoke CRP approach may be more beneficial. As we’ve already explored, a CRP comes pre-fitted with a decumulation lens and that can help you better manage those various interrelated risks and prevent your clients from running out of money in their retirement. This would demonstrate an understanding of the clients’ needs and objectives and can act as a good starting point to construct a more tailored proposition that can deliver better outcomes.
There’s no doubt that CRPs have challenged the use of CIPs in the decumulation space. There’s no regulatory requirement to have a CRP approach but it is a requirement to have a robust process in place to differentiate the different needs of your clients. Adopting a CRP for your retirement clients can certainly help you do that.
Our GRIPs are a range of five multi-asset risk-targeted portfolios. They’ve been designed for clients who are looking to take an income and benefit from regular reviews, hands-on supervision and ongoing fine-tuning, to make sure they stick to their objectives – at no extra cost.
And when your clients are taking a regular income, you can use our drawdown governance service to help you monitor the sustainability of your clients’ income and see when things are heading off track.
Speak to your usual Royal London sales contact to find out more.
1 State of the Adviser Nation, the Lang Cat, March 2020