CPD  

The role of smoothed funds in a volatile environment

  • Understand how smoothed funds can be useful
  • Identify types of clients smoothed funds are suitable for
  • Describe the different propositions in the market
CPD
Approx.30min
The role of smoothed funds in a volatile environment

As an adviser you will know that the concept of smoothed investment returns and smoothed funds is not a new one.

But if you have previously dismissed them, now might be the right time to think again about how they could help your clients reduce the impact of market peaks and troughs on their retirement savings. 

We do not need to be experts in macroeconomics to see that we are living in uncertain times. 

A quick glance at the news reminds us that domestically, Brexit and what it might look like continues to loom large, as does the potential for a general election – the result of which may only add to any uncertainty. 

Globally, the threat of a trade war between the US and China never seems to be too far away from becoming full-blown reality. 

So if you have clients looking to shelter themselves from market volatility resulting from all this uncertainty, whether through necessity, as a result of where they are on their retirement journey, or simply because of their more general attitude to risk, you should consider the role smoothed funds can play in their investment portfolio. 

Could smoothed funds be the answer for clients looking for better returns than cash can provide - clients who might otherwise delay investment decisions until they felt volatility had passed and as a result potentially miss out on some investment returns? 

Key points:

  • Smoothed funds are designed to provide long-term growth 
  • The funds are ideal for people who are taking out a pension
  • The way providers achieve their smoothing varies quite considerably

In this article I will look at who that typical client might be, how they can make the most of different products (or wrappers) to invest in smoothed funds and the role of risk-rating. 

It is also important to look at some of the perceptions of smoothed funds that advisers tell us about when we speak to them. 

Finally I will look at the marketplace for smoothed funds and explore how the different funds on offer look to achieve the same outcome through some quite different methodology.  

Smoothed funds – the basics

Smoothed funds are designed to provide long-term growth with a degree of investment risk, but offering a smoother return profile than is generally available from other multi-asset funds. 

The smoothing they offer can help to take away the day-to-day worry of investing by reducing the impact of short term market volatility. 

Typical client

Which of your clients might find smoothed funds an attractive option? 

Smoothed funds are designed to provide a lower volatility experience for investors, so by definition, the typical client is likely to be a risk-sensitive investor looking for a sleep-easy proposition. 

From experience we know that they are likely to be clients with a decreasing capacity for loss who are looking to balance growth potential with reducing risk – either because they are nearing retirement, or already retired and taking an income from their pension fund. 

The long-term nature of the funds also means that they fit best with clients looking to make an investment of five years or more.