CRPs and Covid-19

6 April 2021



In this final instalment, it’s time to turn the screw on the investment strategy used within your CRP because the Covid-19 pandemic has added an unexpected and challenging twist to the tale.

As we’ve already discussed, a centralised retirement proposition (CRP) is a much more sophisticated vehicle than just taking a centralised investment proposition (CIP) and swapping the investment fund for one aimed at retirement clients. Retirement advice is fundamentally different to advice in accumulation and a CRP framework reflects those key differences.

However, there’s no getting away from the fact that the isolation measures introduced as a result of Covid-19 and the subsequent economic downturn has contributed to a sharper focus on the investment element of a CRP.

The impact of sequencing risk and volatility drag on retirement clients taking a regular income continues to present a significant challenge for advisers and having a robust process in place to review income sustainability is perhaps more significant than ever before.

Dividend extinction

Since the beginning of the pandemic, we’ve witnessed a significant number of companies reduce and suspend their dividend payments. This has triggered significant implications for those funds targeting specific levels of income in which have found their place in a CRP as a means of generating client retirement income.

In 2020, the Investment Association (IA) suspended its yield rules in both the global equity income and UK equity income sectors as a direct consequence of the downturn. These are the very rules that were put in place to ensure funds within both sectors produce a reasonable level of income for investors.

Without doubt this was a sensible move from the IA. Let’s face it, these are extreme times and had the IA not suspended these rules, it could have created absolute carnage within both sectors. We could have seen funds ramping up their risk and chasing yield to maintain their status in the sectors – that would not have been in the best interest of clients but it does beg the question as to what do you do if you’re using income funds as part of your CRP, particularly due to the ongoing economic uncertainty?

Ongoing suitability of investments under the microscope

There are obviously many other planning considerations at play here. Many advisers are already aware that they are responsible for reviewing the ongoing suitability of the investment solution but this has been brought into even sharper focus in light of the material change in valuations and potential client circumstances. It is more important than ever that advisers review clients’ risk tolerances as well as income and expenditure needs to determine whether income sustainability can be improved over both the short and long term.  

Ultimately, advisers need to demonstrate that their process is robust and set-up to deliver good client outcomes and also against client expectations. In the current environment, it makes perfect sense to review the robustness and appropriateness of whatever investment solution you use in your CRP, or CIP for that matter. That should start with a review of the client’s individual objectives through to the investment portfolio’s overall construction, risk metrics and governance.

Having a robust CRP framework in place for your retirement can help you mitigate some of these challenges and help your clients achieve a more sustainable retirement. What’s not to like about that?

About the author

Ryan Medlock

Senior Investment Development Manager

Ryan’s journey with Royal London began back in 2008 after starting his career in compliance with Norwich Union. As an Investment Proposition Manager, Ryan contributed to the growth and development of Royal London’s Governed Range before moving to Aberdeen Standard Investments for a stint in the Strategic Client’s relationship team. Ryan returned to Royal London in 2018 with a focus on exploring adviser angles amongst complex regulation and investment themes. Ryan is responsible for engagement with the advice community and investment industry initiatives, presenting, writing articles and commenting for the press and holds the CFA Diploma in Investment Management (ESG). Ryan is particularly proud of the fact that he finished 952nd in the 2008/09 edition of Fantasy Premier League.

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