Securing income for your clients

4 min read 3 Jul 20

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A key finding from our adviser CRP benchmarking research conducted earlier this year was that a, ‘CRP is a centrally agreed approach to planning in retirement, typically covering the investment and withdrawal strategy and in some cases extending to fact finding, assessing attitude to risk, longevity and capacity for loss.’

Turning assets to income

Whether you subscribe to this view, or just see it as an extension of you CIP for retiring clients, you’ll probably want to consider how you run a client’s portfolio for income. It’s as relevant a question for straight forward drawdown clients, as it is for complex, tax planning scenarios, in a multi wrapper retirement.

Since pension freedoms the answer isn’t likely to be an annuity. (Although only time will tell whether the current pandemic influences a shift in clients’ capacity for loss – and perhaps a return to favour for guaranteed products.) But, your core ‘go to’ solution will probably be influenced by your knowledge and experience, how you view the best way to mitigate risk and the makeup of your client bank.

Common approaches to client income

The same research found that the most popular method, with 42%, was to run the portfolio on a total return basis. Next, with 34%, was the bucket approach. And finally, with 28%, was an income driven method. All could be suitable solutions, but it’s never a one-size-fits-all and more often than not, a combination of several approaches.

Total return

The total return approach is favoured by probability-based number crunchers. Stochastic modelling seems to indicate that a fully invested portfolio has the greatest chance of providing a sustainable income that could last for the rest of the client’s life.


But then there’s managing client behaviour and the challenges associated with helping them stay the course during volatile times. Proponents of the bucket approach might feel total return is too much of a white-knuckle ride for their clients. They may like dividing the client’s funds into long, medium and short-term pots so the client can mentally account for where their income is coming from. And, the different risks they’re taking.

This could remove some of their worry; but, even if you simplify this into an, invested and cash buffer approach, you need to address the cash drag issue (a favourite topic of team probability).

So, what value do you place on managing the clients behavioural biases?

Natural income

The income approach is the least popular. Probably because finding a client who has sufficient assets to live off their income, who can live with the unpredictable amount of that income and who can accept that their capital isn’t 100% secured, is probably part of a much smaller segment.

Having said that, even with the current yield issues, it seems to appeal to some who are trying to cascade wealth down through the generations.  

Practical tips

There are a few things to ponder when you’re devising a client income solution.

  1. Recognise and manage your biases – and the biases inherent in your processes – when identifying the most effective income strategy for clients. Just outlining the options in a documented CRP can help.
  2. Your  core income solution is core for a good reason. Think about how you can effectively and efficiently manage the outlier clients. DFMs that work on platform can be a great option for complex clients where you’re trying to juggles issues like managing CGT out of assets, complex income requirements, strong ethical / ESG positions, combining income and legacy planning with IHT efficient assets, and many more.
  3. Finally, when you think of your CRP and how you articulate meeting the clients income needs, start with the basics. How, if possible, securing their must-pay bills through a guaranteed income could give them a secure base to invest from. In my experience, this is missing from many CRPs and there’s a risk the client is left thinking it’s all about drawdown.  Don’t underestimate the positive and reassuring impact you can have by presenting the full picture.

Download a free copy of the CRP benchmarking report.