The coronavirus outbreak has shocked the world, with no industry unaffected.
Away from the disease, the biggest concern for those in their 50s and 60s has been the impact the subsequent volatility has had on the value of their pensions.
So, how can a financial adviser help clients near retirement deal with the covid-19 disruption to the stock market.
Tim Sargisson, chief executive of Sandringham Financial Partners, told International Adviser: “The important thing is to ensure that clients approaching retirement are investing in a portfolio or fund that has exposure to a broad range of assets to diversifying the risk of their holdings, which is invaluable in periods of volatility.
“It is essential we all do our very best to support clients during these challenging times.
“Clients will be looking to advisers for a safe pair of hands. How we communicate in the coming weeks and months will either enhance our reputation or significantly damage it.
“There’s probably no middle ground.”
Conversations
Communication is key in a time like this. It can really help clients through a period where they will be financially nervous.
Leigh Philpot, head of wealth at Kingswood, said: “At this time, it is important to be the voice of calm and to provide re-assurance, particularly to clients who are approaching retirement.
“It is a time to remind those in money purchase pension schemes who may have seen their pension pots fall significantly, that these losses are paper losses only, and that in time, markets should recover along with the value of their pension funds.
“Advisers should be straight with clients, however, and point out that during these almost unprecedented times, it is difficult to predict with certainty when that recovery will take place.
“Advisers, should therefore, manage clients’ retirement expectations in the current climate and be willing to engage in difficult conversations, pointing out that clients may need to consider potentially delaying the age at which they retire, or adjust their lifestyle preferences.”
Strategies
Advisers should have already made steps to deal with the financial affairs of the client, especially reducing their exposure to risk and volatility.
Sargisson said that if they haven’t done this for clients approaching retirement then “I’m afraid the horse has bolted”.
But what should those investment strategies look like?
“Strategies which enable clients to participate in the financial markets by investing in a globally diversified mix of equities, bonds, commodities and property,” said Ben Raven, director of Tavistock Investments. “This should be done in a liquid and highly regulated, Ucits-compliant fund structure with no minimum term or complicated fees, such as upfront fee, performance fee, or redemption penalties.
“It should also provide clients with a level of capital protection, ideally underwritten by a global investment bank. The level of risk being taken is also key and a strategy with some form of volatility control could be of great benefit.”
Matthew Mitten, partner at Foster Denovo subsidiary Second Sight, said: “Advisers can use tools such as cash flow modelling and other methods to manage different scenarios, including whether the right approach might be to delay taking benefits from pensions.
“It is also worth remembering that many clients approaching retirement may have lifestyling built in to their pension and should most likely have been much less exposed to equity markets in the first place. This should minimise any losses.”
At the end
There is no denying that pension pots have been hit and finances have weakened from coronavirus.
If the steps are in place and defence mechanisms have been used properly, will clients be left with enough in their retirement funds?
“There’s no doubt that we are in for a roller coaster ride and that the global economy has suffered,” said Andrew Tully, technical director at Canada Life.
“After a decade of relatively benign investment conditions, this is a reminder to everyone that markets can go down as well as up.
“While we clearly aren’t out of the woods by any measure, it’s important to remember that there are strategies in place that can help clients protect their retirement savings and advisers are there to support them during this bumpy ride, providing them with the information and reassurance they need.”
Russell Andrews, head of solutions and marketing UK, Europe and Asia for SEI’s asset management distribution team, said: “Assuming that clients remain invested and only sell assets required to meet their immediate drawdown needs, then it is feasible that retirement pots will not be permanently impaired and ultimately be replenished during the coming years, leaving sufficient assets to cover retirements as planned.”
