Now is the time to review your drawdown advice process

23 March 2021



Our Senior Investment Development and Technical Manager, Ryan Medlock looks at the impact of the last 12 months on income sustainability and considers whether this has brought adviser processes around drawdown advice into sharper focus.

Drawdown is and always has been a risky product. The FCA has continued to stress its concerns with the suitability of drawdown advice and this remains one of its key priorities. However, it perhaps took the end of the longest bull run in history to underscore the very real and risky nature of this product.

In recent years, drawdown has increasingly become the default retirement recommendation partly due to its flexibility around both income payments and inheritance benefits, but also as a consequence of annuity rates previously hitting all time lows. There’s no doubt that staying invested during a rising market can deliver some short term benefits for drawdown clients but I dare say the market conditions we’ve experienced over the last 12 months won’t be the ride that many clients would have originally signed up for and indeed hoped for. So what learnings can we take from this period of turbulence?

Time to hit the re-set button?

This may be a good time to review and potentially re-set your drawdown advice processes. That doesn’t just mean where your drawdown clients are invested, it means your whole framework for providing retirement planning advice, your Centralised Retirement Proposition (CRP). This includes re-evaluating your processes for fact-finding, assessing your retirement clients’ risk appetite and capacity for loss as well as managing sequencing risk, income withdrawal rates, longevity and of course, income sustainability.

This period of market volatility has underlined a fresh impetus to the initial suitability assessment of drawdown. As an absolute minimum, this suitability should be reviewed at least annually. Most advisers will be reviewing clients in drawdown regularly, some might do this quarterly. The market outlook remains uncertain and by committing to regular reviews, you have more opportunity to advise small changes in order to ensure your client remains on track to meet their income requirements.

Some drawdown clients in higher-risk investments may never have felt the full magnitude of this level of market volatility before and may not have the capacity or inclination to tolerate future movements of this kind again. For some, significant reductions in investment sustainability scores may bring about a need to re-evaluate risk appetite and capacity for loss and this is where risk profiling and income modelling tools can support your client conversations.

Impact on income sustainability

Whether or not your drawdown clients’ income continues to be sustainable largely depends on the level of risk they’ve been exposed to with their investments, with impacts varying significantly as you’d expect from lower risk to higher risk investments. Clients in lower risk investment solutions have seen far smaller drops in income sustainability relative to those clients in higher risk investments.

It’s also clear that getting the income level right is key to sustainability scores. Our drawdown governance service is able to show the impact of not just current market conditions, but also investment performance and actual client income levels on sustainability scores. This means advisers can responsibly adjust income levels to reflect the wider economic environment and ensure they maximise the likelihood of sustaining income throughout retirement or until annuity purchase.

Review your CRP

An effective and robust framework will mean you’re better able to respond to market conditions and adjust income levels in order to enhance your clients’ long term retirement income plans and help preserve their value. If your processes aren’t as robust, and you have no formal mechanism in place to review your drawdown clients, now might be the time to review your overall CRP and advice processes.

The last 12 months has shown just how risky drawdown can be and the impact that market drops can have on clients’ sustainability if these risks aren’t managed efficiently. Whatever the outlook, clients with well diversified, actively managed portfolios and robust income plans will be well placed to navigate any further volatility.

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.

This website is intended for financial advisers only and shouldn't be relied upon by any other person. If you are not an adviser please visit

The Royal London Mutual Insurance Society Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. The firm is on the Financial Services Register, registration number 117672. It provides life assurance and pensions. Registered in England and Wales number 99064. Registered office: 55 Gracechurch Street, London, EC3V 0RL.