It’s not wrong for the same risk profiling tool to be used for decumulation and accumulation, but people need to be careful how they are used, according to Andrew Storey, group innovation director at EV.
Speaking on a panel at The Verve Group's Evolution 2024 conference, Storey discussed whether the risk profiling tools built for accumulation were fit for purpose when it comes to decumulation.
He said: “There are different client objectives for which you need to pick the right tool. You need four different objectives to be matched by four different styles of option to a solution.”
When asked if it was highly unlikely that the risk profiling tools people were using for accumulation would work for decumulation, Storey said it wouldn’t be wrong to use them.
“You have to be very careful how you use it. So it doesn't necessarily mean it's wrong. You just become aware of how you implement it.
“We've got a growth questionnaire and we've got an income questionnaire. Could you use the growth one for income? Yes, you could. There's a reason why we've got both growth and an income version, but it's how you actually then implement that for the client. That's more important than whether it's a growth or income risk questionnaire,” he added.
Storey also discussed how risk profiling was not redundant in decumulation and was still part of the journey despite the amount of focus that is now given to assessing capacity for loss.
He said: “Capacity for loss arguably should override a risk profile in some circumstances. If you have no capacity for loss, you could argue you shouldn't be investing therefore you don't need an attitude to risk, but it's very hard to do it that way around in practice. You’re not going to not fill out the risk profile questionnaire.
“What you'll find in reality is, you’ll fill in all of those things, and you'll take that into account. But there could well be an override if they don't have enough money for capacity for loss - Then you would not use an attitude to risk initially, but you can still have a conversation about it with the client."
Investment management
Lindsay Spencer, director of investment management at Evelyn Partners said it was difficult for the advice sector as well as the FCA to understand all the nuances of investment management when it came to retirement income because of its complexity.
She said: “The bottom line is, there are so many investment solutions for retirement income that how can anybody be an expert on all of it? How can anyone understand all of it, least of all the FCA.
“If we look at it from an advice firm's point of view, first, it's about looking at what is the basis of your client bank? What in general do they need? Often firms may find that they have one type of client that makes up a larger portion of their business, and therefore focusing on that area first for an investment solution saves a bit of time rather than trying to research everything available in the market.”
