An adviser tool, which will measure the likelihood of success of a client’s drawdown strategy, is to be launched later this year.
Parmenion is developing software that will allow advisers to test their plan against a set of detailed metrics, taking into consideration the client's life expectancy and the likely behaviour of their portfolio.
The firm has been working with Hymans Robertson, a pension consultancy with a background in defined benefit actuarial work, to develop the tool over the past year.
It will be made available to Parmenion's clients free of charge after going through user testing between April and June.
Patrick Ingram, Parmenion's retirement and investment specialist, said: “It’s going to be a tool which will allow you to understand how portfolios at different levels of risk will behave in accumulation and decumulation using stochastic modeling.
“It will mean advisers can access a highly credible score for the relative level of safety in any particular retirement strategy.
"With annuity rates rising over recent months, and markets weaker, this points to a need for advice to be safer, in any way possible.”
The life expectancy of a client will be determined using a set of detailed metrics, including the postcode the client lived in for most of their life.
The tool will also code in the underlying funds a client is invested in to give a clearer picture of their portfolio.
The underlying modeller, Hymans Robertson's global outcomes modeller (see screenshots), has already been tested by consultancy the Lang Cat, which consulted a pool of 36 advisers and concluded it was a positive addition to the market.
In fact, 72 per cent of the advisers said they felt not sufficiently well served by the tools currently available, while 70 per cent of those asked found the concept of using individual client demographics appealing, albeit some had reservations about what they called a postcode lottery.
The Lang Cat’s Terry Huddart said: “Overall, given that 70 per cent of our adviser panel said they were interested in seeing more tools in this market and they liked the post code detail, we think it provides a good addition to the market in terms of what is currently out there.”
“A lot of people were expecting a raft of new software come to market after the pension freedoms and there’s been some but not as many as advisers have been expecting.”
As a consequence, he said, “there seems to be broader group of advisers that don’t feel they are being served well enough.”
Mr Ingram thought advisers might wish to use it to check their historical advice, to see whether plans were still likely to achieve the outcomes they were designed to achieve.
It would also help them assess the right level of risk to take in plans although it is not a risk profiling tool.
He said: “The understanding of how risk can be your friend in drawdown is quite complex.
"The concern is that the recent extraordinary strength in bond portfolios means there has been little downside in taking drawdown portfolio risk down a notch or two. Longer term that looks a 'riskier' strategy than expecting better returns from equities."
In addition, Parmenion wants to introduce a score based system, whereby drawdown plans would be rated independently by Hymans based on the likelihood of their success.
Robert Forbes, Chartered financial planner at Stadden Forbes Wealth Management, said: “It’s a nice addition but everyone should be doing this already.
“When someone goes into drawdown we need to make sure it lasts a long time given a general reduction in risk over time. To not already be doing that is careless.”
He also said there was a danger of being overly reliant on tools. Metrics such as postcodes may work in general but not always for the particular client, he said.
The Lang Cat tested Hymans' prototype of the outcomes modeller, which will be integrated in Parmenion's website.
carmen.reichman@ft.com
