Smoothing the client investment journey to and through retirement

Individuals require an appropriate strategy to ensure they can afford the retirement lifestyle they want. However, there are multifaceted challenges that can impact a pension portfolio’s performance and a client’s investment mindset. Smoothed funds offer a potential solution, says Claire Altman, Managing Director for Individual Retirement Solutions at Standard Life.

Retirement planning is becoming increasingly complex. Advisers find themselves having much deeper relationships with their clients as clients face a range of obstacles such as volatile investment markets and inflation, as well as sequencing and decumulation risks. Furthermore, alongside these factors is a clear trend of rising life expectancy, meaning that an individual’s retirement income may have to last much longer than they think it might need to.

The Financial Conduct Authority (FCA) has continued to shine a spotlight on the quality and suitability of the retirement income advice given to clients, emphasising the importance of personalised, sustainable withdrawal strategies.  Advisers cannot know exactly how long a client will live for, but they can plan for various client outcomes and retirement goals, ensuring that an investment portfolio is designed to help achieve them.

Smoothed funds provide a flexible solution that is well-suited to all stages of the retirement journey – in both the accumulation and decumulation phases. This is because including a smoothed fund as part of a portfolio can help to reduce market volatility risks while still maintaining multi-asset exposure.

Risks and putting clients at ease

One of the greatest threats to a comfortable retirement is sequencing risk. If a pension pot being preserved or used for drawdown suffers significant losses in a sudden market downturn, recouping those losses is a challenge in the later stages of a working life or in retirement itself. Continued market volatility can lead to a further downward spiral, potentially depleting a portfolio before it has enough time for meaningful recovery. This can jeopardise a client’s retirement security. However, smoothed funds can offer a valuable buffer against such a scenario.

“Smoothing helps to counter market ups and downs, so clients are less likely to withdraw their funds at a sub-optimal time,” says Altman. “They're more likely to stay invested for the long term, because even if markets drop then the full impact of that drop isn’t passed onto them – the client’s investment is cushioned by smoothing. Thanks to a smoother investment journey, clients are more likely to remain invested and achieve investment growth over time.”

“With Standard Life’s Smoothed Return Pension Fund, the key aim is to achieve medium- to long-term growth, but with much lower volatility than an unsmoothed investment. This is important because many clients will want to either preserve or grow the money they’ve worked hard to build up. Some clients can find investing to be an uncomfortable experience at times precisely because they don’t want to see sudden losses,” Altman continues.

“Another element to consider is longevity risk. As people age, they want to take less risk and their fear of missing out generally reduces. This mindset can pose a challenge, because an adviser will know that a client may still need exposure to growth assets if their money is to last into their 80s, 90s and beyond. One way to approach this is by having a conversation with a client and saying: ‘I've got a solution that can reduce the daily impact of market volatility, maintain exposure to a range of assets, and it will provide a more comfortable investment journey.’ That’s then a much easier conversation to have.” 

The need for product innovation

“One of the key issues we currently face as an industry is ensuring good outcomes for people at retirement. This is at the very heart of the need for innovation and an important driver of why we delivered a smoothed fund for advisers to offer to their clients,” says Altman.

“In addition to meeting the need for more flexible investment products, smoothed funds offer growth without the same level of volatility that can cause investment-related anxiety among some clients. In a world where people are living for longer and market volatility is a persistent feature, I believe that makes it a valuable addition to retirement portfolios.” 

The Standard Life Smoothed Return Pension Fund launched in January 2024. Standard Life provides the fund structure, smoothing, valuation, and supporting capital, and sets and oversees the strategic asset allocation. The underlying assets are managed by Fidelity’s asset management business. The fund is available exclusively through Fidelity Adviser Solutions.

Find out more

¹https://www.fca.org.uk/firms/retirement-income-advice-assessment-tool-riaat