Investment volatility can have a big impact on retirement planning. Ray Chinn discusses how advisers can get extra support
If you asked most people if they would like a pension with great investment flexibility to provide the best chance of a secure and comfortable retirement - they would probably say yes.
If you asked them if they had the time, experience and could afford to actively manage their pension investments to produce a similar outcome - the answer would probably be no.
Why are these two concepts related? In simple terms, for many people opting for a SIPP, flexibility is driving the decision without significant thought to the added investment responsibility this brings. When markets are rising this is not often an issue. It becomes much more relevant when the markets begin to fall or become more volatile as has been the case in recent times. It means that some of those customers who have taken out a SIPP and contributed to the strong growth in SIPP sales may now be wondering exactly what they have got themselves into. For some advisers this may also be proving a bigger headache than anticipated.
The growth of SIPPs
It is notoriously difficult to find reliable figures on the size of and growth of the SIPP market. Recent research carried out by flexible retirement solutions provider LV=, in association with IQ Research, suggests that many more advisers have started using SIPPs post A-Day. Almost 30% of IFAs who did not do any SIPP business pre A-Day are writing SIPPs today. In addition, around a quarter of IFAs (23%) already active in the SIPP market have increased business since A-Day.
Adviser views - taken from the same research - on market volatility are equally unsurprising. Almost nine out of ten (87%) advisers believe that the markets will continue to be turbulent in the next six months.
Despite this less than a quarter (22%) of advisers questioned are less comfortable about giving investment advice than they were six months ago. So perhaps the adviser market is well prepared to deal with the current market volatility?
Looking below the surface we find:
- Just over a third (35%) of advisers are more concerned about their ability to deliver growth for clients;
- 34% of advisers are finding it more challenging to keep track of market movements;
- Half (50%) of IFAs agree that more time on research is required in order to provide the right investment advice to clients.
A safe harbour?
If you are one of those advisers who do feel that you have the time and experience to weather the current storms circling the investment markets, then you are likely to have your strategy and contingency plans well mapped out.
For others - perhaps attracted by the investment freedoms offered by SIPPs - then you may be searching desperately for a safe harbour from the storms. So where can you look? From asset allocation calls, to outsourcing via multi-manager or discretionary managers, there is a wide choice available.
Revising asset allocation is an option - however, most of the main asset classes (equities, property and even bonds) seem to have an air of gloom around them. Brian Boyd from Tilney, the UK arm of Deutsche Bank Private Wealth Management, comments: "The growth of the SIPP market has naturally brought more pension assets under IFA advice, and when the markets are going up, that can feel very attractive. But when the markets are as volatile as they have been in recent months, and even traditional defensive asset classes struggle, then that responsibility can start to weigh heavy."
Some of the more esoteric alternatives may again lead either the adviser or customer into unchartered waters and without expert help may simply not be accessible. This is where multi-manager or specialist discretionary managers can come into play. Boyd continues: "We find that we are able to use the increasing number of non-equity specialist investments that are available within the market place to help IFA clients. Many of these offer varying degrees of capital protection that prove attractive in such market conditions and help to smooth the volatility of returns from a portfolio. Often these structured products and hedge funds are only available to heavyweight institutional investors."
This sentiment is echoed by Nick Georgiadis from Cazenove Capital Management who states the "'multi-asset' approach to investing we have adopted has stood up well to the recent volatility in financial markets." He continues: "This approach was developed following the last major downturn in equity markets at the beginning of the decade with the aim of substantially reducing volatility in portfolios without significantly reducing growth prospects in the longer term. Having developed a considerable expertise in asset classes such as hedge funds and structured products, we have been able to reduce the dependence upon the more risky asset classes such as equities. As a result, portfolios are currently displaying considerably lower volatility than the more traditional equity focused approach."
So is employing a specialist discretionary manager the answer to navigating current market turmoil? Many would suggest so.
With nearly a third (32%) of the IFAs surveyed agreeing that discretionary managers (DMs) are likely to produce better results than they themselves would expect to achieve it would appear we are likely to see the increased use of DMs to support advisers if markets continue to fluctuate over the coming months.
A comfortable cruise?
For those advisers not convinced about the benefits of working alongside a DM when advising on a SIPP portfolio, Glenn Hawksbee from Citiquilter sums up a common view. "We have witnessed an increase in the use of our services by SIPP holders, which can largely be attributed to our use of plain English and a full explanation of the possible risk reward scenarios. This provides a level of comfort and personal touch for those clients who may not understand the service and, not relish the thought of placing their money into funds operated by people they will never meet and who may not fully understand their personal retirement needs. Equally advisers feel confident in sharing this problem with professionals who share the common goal of the client and remove the adviser's compliance risk"
So whether you choose to set sail with your SIPP in the SS DIY Asset Allocation, MV Multi-manager or HMS Discretionary Manager, the coming months are likely to test your sea legs to the full.
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