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New Retirement Portfolio Service targets longevity and sequencing risk

18 September 2019

AJ Bell has launched a new service to help adviser firms manage clients taking income in retirement. 

The AJ Bell Retirement Portfolio Service, available through the AJ Bell Investcentre platform, is aimed at clients drawing an income under the pension freedoms, the group said. It can be accessed via self-invested personal pensions, ISAs or general investment accounts.

The new service will see clients’ portfolios split into a mixture of cash and funds, designed to prolong their longevity in the decumulation phase, while minimising the sequencing risk, which can have a detrimental impact on a portfolio if investments are sold at a loss.

It will centre around the 4% rule, which works on the premise that if someone withdraws 4% of their retirement fund value in the first year and then adjusts subsequent withdrawals for inflation they should avoid running out of money for 30 years. However, the service is flexible to allow more or less than this figure to be withdrawn, AJ Bell said.

Investments will be split three-way; 45% in the AJ Bell Income and Growth fund; 45% in the AJ Bell Income fund and 10% in cash, with the latter being used to meet clients’ income requirements as agreed with their adviser. The annual 4% yield produced by the two funds is paid into the cash account, which is designed to act as a defence against sequencing risk.

In addition, the service offers clients’ portfolios smart rebalancing, which means the need to sell after a market fall is reduced by selling investments only after profits have been banked.

Kevin Doran, chief investment officer, AJ Bell (left), said the pension freedoms had created a need for products and services that help advisers deliver “an effective retirement proposition.”

He said: “With income drawdown now the most popular retirement income option, advisers and their clients are having to get to grips with managing portfolios in the withdrawal phase and the specific challenge of sequencing risk.”

Doran said the Retirement Portfolio Service had been designed as a ready-made solution, enabling advisers and clients to focus on their income needs without having to worry about the running of the underlying portfolio.

He added: “The cash bucket will ensure they don’t have to sell investments at the wrong time and the yield generated by our two income funds should be able to support a sensible withdrawal strategy over the long term.”

There is no fee for the service as AJ Bell will receive its normal management fee on the underlying investments. Its annual management charge for both funds is 0.15% with the ongoing charges figure capped at 1%.

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