AJ Bell has launched a service to help advisers manage clients who take a regular income in retirement under pension freedoms.
The AJ Bell Retirement Portfolio Service, launched today (September 16), is aimed at clients drawing an income under the pension freedoms and is available through a self-invested personal pension, Isa or general investment account.
The new service offers advisers a fully managed centralised retirement proposition and is available through the AJ Bell Investcentre platform.
The service splits the clients’ portfolios into a mixture of cash and funds which are designed to make pots in decumulation last longer, while minimising sequencing risk.
Sequencing risk is the threat that the timing of withdrawals from a retirement account will have a negative impact on the overall rate of return.
If investments are sold after a fall in value, the remaining funds need to work harder to make that loss up.
To avoid this risk, AJ Bell has designed its new service around the 4 per cent rule.
This rule follows the premise that if someone withdraws 4 per cent of their pension pot in the first year and then adjusts subsequent withdrawals for inflation, they should avoid running out of money for 30 years.
The service splits the client’s pot to invest 45 per cent in the AJ Bell Income and Growth fund and a further 45 per cent into the AJ Bell Income fund.
The remaining 10 per cent is left in cash.
The service also uses a rebalancing approach which banks profit along the way, to further avoid sequencing risk.
If the client’s income requirements are more or less than the natural yield of 4 per cent targeted by the funds, the cash bucket will fall below or rise above the initial 10 per cent allocation.
Cash balances over 10 per cent are reinvested, but if cash falls below 4 per cent, the portfolio resets back to the initial three bucket allocation.
There is no fee for the service as AJ Bell will receive its normal management fee on the underlying investments.
AJ Bell’s annual management charge for both the funds is 0.15 per cent with the ongoing charges figure capped at 1 per cent.
There is also a platform charge which applies to the fund holdings, scaling down from a maximum of 0.2 per cent depending on portfolio size but platform charge is not applied to the cash reserve.
Kevin Doran, chief investment officer at AJ Bell, said: “Given the popularity of the pension freedoms there is a real need for products and services that help advisers deliver an effective retirement proposition. With income drawdown now the most popular retirement income option, advisers and their clients are having to get to grips with managing portfolios in the withdrawal phase and the specific challenge of sequencing risk.
“Our new retirement portfolio service has been designed as a ready-made solution that enables advisers and their clients to focus on their income needs, without having to worry about the running of the underlying portfolio.
“The cash bucket will ensure they don’t have to sell investments at the wrong time and the yield generated by our two income funds should be able to support a sensible withdrawal strategy over the long term.”
amy.austin@ft.com
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