James has been a client of mine for just a few years. I took over his account from another adviser who had failed to keep in regular contact, which was very important to James.
The main advice that I have offered to James has been planning for the third stage of his life which has centred mainly on retirement and pension advice.
James is a partner with a top law firm. His earnings are high and his time to retirement short, so he needs a more disciplined approach to his planning.
He expects to retire in a couple of years which does not leave a lot of time to ensure his assets are adequate and correctly positioned to permit this.
When he does retire, he will need to start drawing on his pension funds. A Sipp clearly works well for clients such as James, as it is a structure that can last right up until age 75. Also, with the size of sums invested, stakeholder and personal pension plans are unlikely to prove satisfactory because of their restricted fund range, lack of flexibility and charging options.
When I first took over his account, James had a combination of an old-style Sipp and some fairly ancient retirement annuity plans.
The first exercise was consolidation into a more modern Sipp, opening a wrap account for him at the same time. This took a little time as it was vital to ensure that the recommendation to consolidate took full account of the benefits and costs of disposing of some fairly ancient policies. There were no guarantees embedded in these and the charging structures were definitely dark ages which made the exercise profitable for James as well as practical.
The opening of a full wrap account was particularly useful for James as he now had online access to all his assets, which reduced the stress for a time-poor lawyer.
The wrap account enabled there to be a much greater degree of transparency on his account and we could really drill into the asset allocation. This proved to be particularly important as James had exposure to a high amount of equities, mainly held in the UK within his pension portfolio. Many of the holdings were of a speculative nature.
It is fair to say that this strategy had served him well in the past but the future holds great change for James.
One of the first crucial steps we took was to thoroughly understand and test James’s appetite for investment risk in the light of his need for income via pension fund withdrawal.
Looking carefully at James’s risk profile, the asset allocation that he had when we met exposed him to higher risks than he was truly prepared to take. Bearing in mind that he was planning to retire in a couple years, we needed to start to reduce the volatility and risk of the portfolio.
James is still a relatively young man as he is in his early 50s. This means that the Sipp will need to work for him over a long time, if we take a view that he will use drawdown through to age 75.
We cannot in these circumstances ignore the positive side of real asset investing with the ability to return more than inflation and pay a rising income over the years.
One of the advantages of the wrap system we use is that it is easy to look at overall asset allocations and also in greater detail at the holdings within the funds. James was reassured on looking at the factsheets on the various funds that the top holdings within his equity funds were sensibly positioned, both to offer the opportunity to protect his wealth and income and to diversify his assets given the current market turmoil.
That I was able to give him this information straight away saved time and enabled us to discuss our findings immediately.
It is fair to say that without the functionality that the wrap provides, it would have been difficult to give answers as quickly and accurately as I was able to at our meeting.
That we were able to drill down to this level of detail has meant his portfolio is better positioned not only in the current climate but also for his particular plans in the shorter term.
No client is unaware of the market turmoil but in these times, the ability to give timely and accurate advice and reassurance is even more important than when the equity rises are only upwards.
Amanda Davidson is a director of Baigrie Davies