Dynamic Planner is launching a tool to assess risk in decumulation portfolios with UBS and JP Morgan among the first asset managers signing up to be put under the microscope, Portfolio Adviser can reveal.
The Dynamic Planner Risk Managed Decumulation (RMD) Service will provide a purple badge for participating funds that will sit alongside the gold badge for risk-profiled funds or the burgundy badge for risk-targeted funds.
By focusing on sequencing risk rather than annual volatility, the RMD service will allow advisers to compare portfolios where units will be encashed on a monthly basis. The model underlying the RMD service runs around 6,000 simulations to assess a range of possible outcomes for assets facing a fixed rate of withdrawal coming out.
The Financial Conduct Authority has raised concerns about the lack of choice available to retirees seeking decumulation portfolios in its retirement outcomes review.
Unfair to compare decumulation portfolios with Vanguard Lifestrategy
In the rising market environment since the 2015 pension freedoms, decumulation portfolios have compared unfavourably with accumulation counterparts on traditional performance measures that do not take into account a clients’ monthly income needs, Dynamic Planner said.
Dynamic Planner proposition director Chris Jones (pictured) said this means the bulk of decumulation portfolios launched in the last five years are “yet to enjoy the market share they deserve” because advisers have faced difficulties making like-for-like comparisons.
“If you’re measuring a unit by its performance Vanguard Lifestrategy will win because it’s not managing the risk at all,” Jones told Portfolio Adviser. “So decumulation is always going to lose out because if you are sacrificing longer-term returns for short-term volatility control something has to give.”
Most portfolios assessed by the RMD service had a risk rating of between four to six, Jones said. This was a sweet spot for retirees requiring set monthly income with those having a lower-risk tolerance more likely to pick an annuity, he said.
UBS and JP Morgan among asset managers signed up
Ahead of launch, a small group of asset managers have signed up to provide Dynamic Planner a full look through to their portfolios on a monthly basis and therefore be part of the service. For Dynamic Planner’s existing risk ratings, asset managers provide this information quarterly.
Jones acknowledged it was a big undertaking for asset managers to provide full holdings on a monthly basis but that being part of the RMD service should stimulate demand for their products.
UBS and JP Morgan Asset Management have both signed up as partners and Dynamic Planner will reveal the remaining asset managers in the coming weeks.
Jones hoped in a year’s time, as the service gains traction with advisers, there would be a much larger group of asset managers sharing monthly data to be part of the service.
