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Advisers' clients prioritising income generation

Advisers' clients prioritising income generation

Generating income is the number one priority for advisers’ clients in 2017, according to a poll by FTAdviser Advantage.

Clients are prioritising their need for yield over investment growth in their portfolios and inheritance tax planning, the research showed.

Income has become increasingly important for investors and savers since the introduction of the pension freedoms more than 18 months ago, while the low interest rate environment has also encouraged people to seek income.

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The poll revealed 53 per cent of advisers’ clients believe generating income is important for them this year, followed by investment growth at 27 per cent and inheritance tax planning at 20 per cent.

No-one has placed saving more into tax efficient funds as their main priority for 2017, the poll revealed.

The challenge for advisers and investors will be sourcing a decent level of income, following warnings from some analysts that dividend cover is fairly thin.

Russ Mould, investment director at AJ Bell, said: ““Dividends have accounted for 74 per cent of total returns from the FTSE 100 over the past 30 years. They are therefore an important consideration for all investors when choosing which companies to invest in, particularly those looking to generate an income from their portfolio.

“With income being such an important consideration for many investors, particularly those in retirement, it can be tempting to simply seek out the stocks that are forecast to pay the highest dividend yield. However, it is important to also assess whether the dividend yield is sustainable by looking at dividend cover and whether the dividend is growing.”

Ryan Hughes, head of fund selection at AJ Bell, suggested four funds that offer diversified exposure across a broad range of dividend-paying companies and may be suitable for income-seekers, including Artemis Income, the Woodford Equity Income fund, Invesco Perpetual High Income and Montanaro UK Income.

The best-selling Investment Association sector in November 2016 was the Targeted Absolute Return sector, with net retail sales of £366m, while the Mixed Investment 40-85% Shares and Mixed Investment 0-35% Shares sector also made it into the top five biggest selling sectors in the month, as investors positioned themselves for income and investment growth.

There is evidence many clients will turn their attention to inheritance planning this year though.

Recent research on inheritance from the Institute for Fiscal Studies revealed a significant rise in the number of people who expect to leave more than £150,000 in their estate.

Simon Rogerson, chief executive of Octopus Investments, commented: “It is perhaps inevitable that more people will be seeking advice on estate planning strategies that can help maximise the inheritance they can leave behind for their loved ones. 

“The onus is on advisers to ensure that their clients are aware not only of their liability but of the full range of options available to them and how best to plan now for an increasingly mainstream tax problem.”