As investors gain the freedom to take money out of their pensions, advisers are expecting greater product innovation, particularly in the multi-asset arena, and greater use of institutional strategies reinvented for the retail investor.
Fund group executives will be kept busy deciding whether a complete product overhaul is necessary or whether they should just reposition existing products.
According to Fidelity FundsNetwork’s Adviser Class of 2015 survey, 79 per cent of the 209 firms that responded saw a need for new products and investment propositions to help investors secure an income stream in retirement.
Lee Robertson, chief executive of London-based wealth manager Investment Quorum, says his firm, having discretionary powers, prefers to build portfolio solutions itself, though many off-the-shelf multi-asset funds are “probably fit for purpose”, adding that “there are far more funds that are more appropriate for accumulation than decumulation”.
“That said, my heart always sinks a little as I really don’t think we want to be launching more products when there are already so many that don’t do what they are supposed to do.”
Mr Robertson says the industry historically has focused on accumulation because clients more often than not have used a life company solution for their decumulation phase. But, he adds, “it is changing, so it might be just a case of asset managers repackaging some existing products”.
The need for a reliable income stream, protection against inflation and a degree of capital growth – either to enjoy or pass on to the next generation – will apply regardless of when clients retire but has become a greater challenge to achieve.
Previously, the method of lifestyling, which involves moving a greater proportion of an investor’s portfolio into bonds and out of equities as they near retirement, may not be the most sensible strategy, given exceedingly low bond yields.
Alan Burnett, director at Lyxor Asset Management, says because lifestyling was designed to meet widespread annuity purchase at a certain age, people ended up divesting their assets based on how old they were, rather than on their financial requirements or what was going on in markets.
He concedes such a strategy would be effective when seeking a lump sum much later in life, for example. “If you had five years to live, were still fully invested and a 2008-style situation came along, you’d be pretty stuffed,” he says, adding the solution lies in outcome-oriented strategies.
Regardless of whether investors opt for a diversified growth fund, multi-asset income solution or absolute, targeted or directional return strategy, Mr Burnett says the basic premise ought to be seeking uncorrelated returns.
Christopher Mahon is director of asset allocation research in the global multi-asset group at Barings, which recently relaunched the Dynamic Capital Growth fund. He is mindful of the delicate balance between diversification and cost, saying the fund was designed to “mimic” Barings’ traditional multi-asset portfolios using passive underlying investments.
He says this was done in an attempt to fall within the 0.75 per cent charge cap affecting products designed for auto-enrolment and implemented this month.