Fiona Tait, technical director at Intelligent Pensions, says: “In terms of investment, the ‘best outcome’ for a client is the one that is close to the one which is expected, not necessarily the one which provides the highest return possible, and this is particularly true of a pension where a client is likely to be relying on a specific level of income to meet ongoing expenses.
“Advisers obviously cannot promise that investments will perform as expected, but they do have experience and access to research, which allows them to make reasonable assumptions and identify whether the client’s initial objectives are in fact realistic before any action is taken.
“Once the client’s income requirements have been agreed, advisers can calculate the risk parameters within which the client’s investments must operate, including strategies that mitigate or insure against the impact of poor investment returns.
“Doing all of this significantly increases the chances of the client meeting their objectives without guaranteeing it.”
Jonathan Cooper, head of paraplanning at Drewberry, says: “Clients' goals for invested money should be clear and defined. A robust framework for investment strategy selection needs to be followed. Given the risks of drawdown, and decumulation generally, there should be alternative frameworks for this that differ to those goals where accumulation and growth are required."
Gavin Jobson-Wood, specialist business development manager at Scottish Widows, says: "Advisers need to balance the requirement of ensuring their client is exposed to sufficient investment risk in order to achieve their retirement objectives while considering the client’s own views on investing (for example, attitude to risk). The adviser has a responsibility to educate their client in this regard, highlighting the risks of taking too little risk as well as of taking too much risk."
Ryan Medlock, senior investment development and technical manager at Royal London, adds: “Adopting a broad diversification strategy is an effective way to mitigate the impact of investment risk for clients. Proper diversification will mean you are always going to be holding at least one asset that is underperforming, but I’d argue that this is very much a success of the design and not a failure.
"As the turbulence over 2020-21 has shown us, that design can not only be an effective path to maximising risk-adjusted returns, but can also serve as a defence against rising inflation through exposure to different investments, particularly commodities.
“Many pensions clients will have an investment horizon of years, if not decades. It's a simple statement, but one that can be forgotten during periods of sharp volatility. We would all deny that we are susceptible to allowing heightened emotions to dictate our investment decisions, but we saw it in 2020 when feelings of panic, agony and depression resulted in a rush out of quality diversified assets.
