Financial advisers will need to change the way they manage clients in the decumulation phase as market volatility starts to bite, according to Justin Onuekwusi, fund manager and head of retail multi-asset funds at Legal and General Investment Management.
Mr Onuekwusi, who's firm operates both income and growth mandates, said advisers who have clients invested in growth funds should reconsider their position as the bull run has come to an end.
He said: "During the years when volatility was low, many clients in the decumulation phase were paid income from the capital value of the investments. Now that reduces the size of the pot overall, but in a bull market, the shares rise in value and the size of the pot is restored.
"But in a time of heightened market volatility, paying the retirement income from capital means reducing the size of the pot. So advisers need to shift towards income focused assets."
Mr Onuekwusi also said he doesn’t anticipate the present volatility being a harbinger of recession.
This was because one of the indicators he considers to be most reliable, the level of defaulters on debt in the US economy, continued to be low compared with historical periods when recessions have followed closely behind.
Peter Hargreaves, who co-founded the Hargreaves Lansdown fund management business, has previously said he feels advisers in the UK are too focused on income bearing shares, saying this harmed long-term investment returns.
Paul Gibson, who runs Granite Financial Planning in Aberdeen, said: "Market volatility is normal and we encourage clients to retain sufficient liquidity to draw on cash reserves in the event of a sustained downturn. We have globally diversified portfolios and don’t feel short term tactical calls add any value."
david.thorpe@ft.com
