Multi-pot capability across wrappers: Giving clients control and composure
31 October 2017
“What are your plans for retirement?” This simple question leads very quickly into a complexity of choice and risk, the landscape in which financial advisers operate, as they solve problems for their clients, says Patrick Ingram, Retirement Specialist at Parmenion.
Let us take the everyday situation of a couple approaching their 65th birthdays. They have a combination of good pensions from the State and their various former employers, some DB, some DC, and with some ISA savings. For them, there is a sense of reassurance from the structural diversification of their resources, with a satisfactory underpinning of secure income. Their exposure to risk from investment markets can be set at whatever level they choose or prefer. They can take whatever markets throw at them, with reasonable confidence that it won’t destabilise life at home. They are retiring at a natural time for them both, and their motivation for that step is high.
Compare their situation to a couple without DB pensions or in receipt of a large DB transfer benefit, looking at early retirement because they don’t enjoy work anymore. They have taken on their own shoulders longevity risk, market risk, and they will write off their economic capacity (their ability to earn a living) by leaving work early. Their motives are complex. They will be alert to a sense of risk from the unexpected, knowing that the future is unpredictable, and having to fund an equivalent lifestyle from their newfound wealth. Advice to them will focus on their expected level of withdrawals and their level of portfolio risk, all subject to uncertainties. Without coaching, a considered investment recommendation on its own is unlikely to meet their emotional needs for reassurance.
This is where a pot based strategy can be used to map wealth to discrete financial goals directly, to build confidence that the investment advice is coherent and comprehensive. And it’s a picture of how things will operate that stays in the mind’s eye after advice has been accepted.
Multi-pot based strategy
There are three planning areas in which the Multi-pot approach could be utilised: the liquidity reserve, the discretionary spending pot and a legacy pot. All three of these goals has a different purpose and would merit consideration of a different risk grade to the main ‘core expenditure’ pot.
It is a feature of Parmenion’s technology that pots in our platform SIPP can be given individual names, which makes the re-identification of the funds straightforward when looking at valuations or online.
There may be a number of particular benefits in splitting the discretionary spending pot off from the main income generating portfolio. A big swing factor in most retirement plans between a Bronze Retirement and a Platinum Retirement is the amount spent on discretionary items. Assessing how much is needed for core expenditure can be done with more precision leaving it a matter of simple subtraction to find out how much is left over for fun, which could form the basis of how decisions on how withdrawals from the pension are considered.
It all seems to make intuitive sense and therefore carries a big emotional credit for the client. And the Parmenion SIPP makes it all simple and intuitive to administer. Switches of risk grade, switches of portfolio solution, subdividing pots further, renaming portfolios, setting up withdrawals in £ or % terms, all these changes can be put through online by the Adviser, and all at no additional charge to the client.
That has to be a great message when the problem is: “What are your plans for retirement?”
A recent decision by the FOS to uphold a complaint against Intrinsic Financial Planning highlights several issues with how...
Defined benefit (DB) transfers remain topical and the Financial Conduct Authority (FCA) continue to find problems in this market....
In our last Parameters survey we asked paraplanners to name the business and non-business book they would recommend to...