Risk mindset change can help financial advisers with savers retirement plans

A change in the way financial advisers think about risk can lead to better outcomes for those in or approaching retirement.

With vast amounts of regulatory change taking place, financial advisers find themselves in a difficult position when they are looking at delivering positive outcomes for investors who are planning to retire or already have.

Yet, with data-driven tools and products to show savers who have retired – or are approaching retirement – the benefits of a different risk mindset, advisers will be better placed to deliver positive outcomes, according to FE Investments.

During 2022, FE Investments launched its Decumulation Illustrator that encourages retirees to think about risk in a different manner to how they may have done in accumulation.

The Decumulation Illustrator tool frames risk as the probability of the investor running out of money. It allows financial advisers to discuss income drawdown in a way that is relevant, meaningful and understandable to investors.

Earlier this year, FE fundinfo's adviser survey showed that 70% of advisers surveyed now have a Centralised Retirement Proposition, an increase from just under half of all advisers surveyed a year ago. Additionally, a further 20% have said they are planning to develop one.

To help advisers, FE Investments has launched two model portfolios solutions that are each specifically made for distinct retirement risks.

The Initial Income Portfolio’s defensive positioning means that it takes a reduced level of market risk and insulates against a large market fall, meaning investors can withdraw money from it on a regular basis with relative confidence.

Required income should be withdrawn from this portfolio in the initial instance until the portfolio value is run down to nothing. The growth potential of the portfolio is limited; therefore it is not suitable as a long-term holding.

The remaining portion of the portfolio could be placed in a longer term portfolio such as the FE Investment’s Long Term Retirement Portfolio that is still diversified across multiple asset classes offering the best chance for savers to meet their income needs over the longer term.

Toyosi Lewis, Retirement Investment Specialist, FE Investments, said:

“The primary objective of retirement planning is to replace the income from work with a retirement income that provides savers with an income that they are comfortable with and not just one that they can survive on. As savers approach retirement, many rely heavily on the advice provided by experts as they look to navigate the plethora of options available to them

“A well-thought-out plan, therefore is imperative as it can reduce the probability of them running out of money and gives them peace of mind. However, with so much turbulence within the investment chain – both regulatory and other pressing financial matters – the challenges facing advisers is now more complex than ever before.

“It’s led to an increase in demand for innovative decumulation solutions for financial advisers to use. To help meet this need, FE Investments have designed a product range, planning tools and investment solutions so advisers can ensure that they are providing the best possible advice and solutions to ensure savers are achieving a sustainable income in retirement.”

For more information on FE Investment’s decumulation portfolios click here.