We all know that the decumulation phase of retirement planning is very different to the accumulation phase. The FCA also view them as two very different and distinctive phases. 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 84% of advisers are placing 80% or more of their business into some form of CIP.
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 can be a bit limited in the decumulation phase because the overall process doesn’t focus on things like capacity for loss, spending requirements in retirement, sequencing risk and the sustainability of client withdrawals. 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 deliver good client outcomes for your various target markets.
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 CIP approach may be more than appropriate for clients in the latter of these categories. It then becomes a matter of which CIP is the most efficient for this portion of your client bank and your business over the long term as well as considerations given to the flexibility of the platform and the type of advice service being offered. But it demonstrates putting the client first and building a proposition upwards which is a focus of PROD.
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 using that as a starting point to construct a more tailored proposition that can deliver better outcomes.
There’s no doubt that CRPs have raised the CIP bar in the decumulation space. It’s not essential to have a CRP but it’s important to have a robust process in place for your decumulation clients and a CRP can certainly help you do that.
Our Governed Retirement Income Portfolios (GRIPs) and drawdown governance service are just two examples of how a CRP can help your drawdown conversations hit the right notes.
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 or visit our drawdown hub to find out more.