Here at We Complement, we’ve been immersing ourselves in extensive research to uncover what truly makes a standout Centralised Retirement Proposition (CRP).

A CRP isn’t just your typical Client Investment Proposition (CIP) with a few adjustments for retired clients. It’s about crafting a solid, repeatable, and reliable process specifically tailored for clients in decumulation. We’re honing in on the areas of financial planning that hold significant importance for individuals at this stage of life.

While there’s often overlap between your review processes for clients in accumulation and decumulation, this article is all about shining a light on how to adapt your review process for clients approaching retirement. Discover how these adaptations can be seamlessly integrated and documented within your CRP.

1. Frequency and type of review

As a client approaches and enters retirements, you may recommend that you meet for review meetings more regularly than when they were in accumulation. You might also feel that the client would benefit from in person meetings, rather than online or telephone meetings, to improve communication during what can be a period of significant change for many people. This could vary between sub segments of clients.

If there are any changes to how and when you meet your retirement clients for a review when compared to your processes for accumulation clients, this could be documented in your CRP. This demonstrates that you have considered the service you are offering your clients and whether it is still meeting their needs and providing value for money in this new stage of life.

2. Data gathering

How often do you ask your decumulation clients to complete a full fact find? Is there anything specific that would trigger a new fact find being requested?

Clients who are approaching retirement or who have recently entered retirement may experience a lot of life changes in a short period of time, compared to the average accumulation client. This could mean that you ask your clients to update their details more regularly when they reach retirement age. You may also have a different fact-finding process for clients once they reach this stage of their life. This is explored in more detail in our previous blog, Central Retirement Propositions – Deep Dive #3: The Fact Find.

3. Cashflow updates

Your approach to cashflow modelling and how often you update these models is something else that can be documented in your CRP.

How often do you run a cashflow model for your decumulation clients, and does this change depending on sub segments? Is this different for your accumulation clients?

You might also model more or different scenarios for your decumulation clients, use different stress testing methods, or incorporate tools like Monte Carlo simulations for certain clients.

4. Vulnerability

Clients can be vulnerable at any age. According to a 2022 survey by the FCA

https://www.fca.org.uk/data/financial-lives-2022-early-survey-insights-vulnerability-financial-resilience

47% of UK adults showed one or more of the key drivers of vulnerability, which are defined by the FCA as poor health, negative life events, low financial resilience or low capability.

However, as people get older, certain drivers of vulnerability, such as poor health or negative life events, may become more likely. Some clients may also consider retirement to be a stressful time, and so retirement itself could influence a client’s vulnerability.

How do you assess clients for vulnerability, and do you make any changes to your processes surrounding vulnerability for clients who are at or approaching retirement?

5. Event driven reviews

Certain events, whether life events specific to the client or world events that could affect all investors, could prompt you to arrange an ad hoc review meeting with a client. Your approach to this may change as clients enter retirement, and possibly vary between sub segments of clients.

For example, a market crash could affect all clients, but clients who are in decumulation may be affected more than clients who are in accumulation. Breaking this down further, clients who are at the start of their retirement journey and who are heavily reliant on their investments to provide them with an income may be particularly impacted by this. In contrast, clients who have significant secure income and who have already enjoyed many years of retirement may have less to worry about.

What is your process for identifying when retirement clients might benefit from a review outside of your agreed review schedule? Are there any particular trigger events that would prompt you to make contact with certain clients?

If you’ve been keeping up with our previous blog posts, you’re probably familiar with our exploration into what makes a top-notch Centralised Retirement Proposition (CRP). It’s essential to understand that a CRP isn’t just a Centralised Investment Proposition (CIP) dressed up for retirees. Instead, it should offer a sturdy and dependable process tailored to meet the unique needs of clients transitioning into decumulation, with a special focus on the financial planning aspects crucial during this phase of life.

In this week’s newsletter, let’s dive into how we can personalise the fact-finding process to better suit clients nearing or already in retirement, and how this tailored approach can lead to better outcomes for everyone involved. While the data we gather during the fact-finding phase might stay consistent across clients in both the accumulation and decumulation stages, there are specific topics of conversation that can truly enrich the process for those stepping into decumulation.

1) How do they plan to utilise their pension?

For a significant number of clients, the response may be quite simple: they aim to use their pension to finance their retirement years. However, other clients might have ample assets and income from other streams, so they don’t plan on tapping into their pensions. Instead, they view it as a strategic tool for estate planning. There are clients who’ve been contributing to a pension throughout their career, under the assumption that they’d depend on it during their golden years. However, as they edge closer to retirement, they realise that their needs and goals have evolved. Engaging in dialogues regarding how a client intends to use their pension becomes especially crucial as they contemplate or transition into retirement. While such discussions are feasible at earlier life stages, much will probably have transformed by the time a client enters retirement.

2) What is their vision of retirement?

As clients approach retirement, their perspectives on this life stage may alter. Some may arrive at their target retirement age only to realise they’re not prepared to cease working, while others might experience a contrasting revelation and opt for early retirement. Certain clients may conclude that a gradual retirement suits their needs best, whereas others might decide to continue working full or part-time until it’s no longer feasible. While these subjects can be discussed during earlier phases of life, it’s important to note that upon reaching the milestone of retirement, clients’ preferences could shift.

3) Exploring health history and lifestyle

The challenge of longevity risk and the duration a client’s pension needs to sustain them is fundamental in retirement planning. While some health, lifestyle, and family history data may have been collected earlier in the financial planning process, the approach of retirement presents an opportune time to delve deeper into all factors that could potentially impact a client’s lifespan, and subsequently, the longevity of their pension. This information could also offer insights into how a client’s activity levels and income requirements might evolve as they navigate through the different stages of retirement.

4) Addressing client concerns about retirement

The psychological aspect of retirement planning is equally as important as the practical considerations. Retirement represents a significant life change that, while often celebrated, can also trigger an emotional transition fraught with worries and concerns. Understanding these concerns can provide valuable insight into your client’s mindset and potential future reactions. For instance, a client accustomed to a regular income might find the prospect of relying solely on savings daunting, even if their savings adequately meet their income needs. Such clients may be more susceptible to overreacting to market fluctuations and could benefit from strategies that take this into account. Some concerns may be baseless, acting as unnecessary barriers preventing clients from achieving their goals. Other concerns, while valid, could still benefit from open discussion with their adviser. Encouraging clients to voice their worries and concerns about retirement can help create a retirement plan that is tailor-made for each individual, enhancing the overall client experience and outcomes.

The main takeaway is that the fact find you use for accumulation clients might not allow you to probe deeply enough into a decumulation client’s situation. In addition, alongside a standard fact find, an individualised approach to the fact-finding process, including open-ended questions, is crucial. This approach requires a comprehensive understanding of the client’s retirement goals and financial situation, as well as a deeper exploration into their health history, lifestyle, and potential longevity. Advisers must also address the psychological aspects of retirement, understanding and addressing any fears or concerns clients may have about this significant life transition. By tailoring the fact-finding process to each client’s unique needs and circumstances, advisers can create personalised retirement plans that enhance client outcomes and satisfaction.

We Complement have been assisting businesses in developing and integrating centralised systems for numerous years, rigorously testing them for robustness, reliability, and repeatability. If you’re interested in learning more about how we can lend our expertise to help you establish centralised systems, please visit our website or reach out to us. Whether you prefer to connect online or give us a call at 01472 728 030, we’re here to help!

At We Complement, we’ve been delving deep into the elements that constitute an exceptional Centralised Retirement Proposition (CRP). A CRP is more than merely a Centralised Investment Proposition (CIP) modified slightly for retirees. It should offer a reliable, repeatable, and consistent procedure for managing clients in the decumulation phase, with an emphasis on financial planning aspects that are particularly crucial at this life stage. This article aims to highlight areas to contemplate while devising an appropriate and sustainable withdrawal strategy for your clients. This article is not intended to be an exhaustive checklist of what a CRP should include, nor does it favour one strategy over another. Instead, it aims to stimulate thoughtful discourse and consideration. We hope it offers some valuable insights!

How do you determine the sustainable withdrawal rate for your clients?

Clients typically rely on their pensions to sustain them throughout their remaining years, necessitating guidance to discern the ideal withdrawal amount to ensure their pension does not deplete prematurely. The calculation of this figure is a challenging process, not necessarily an exact science, underlining the importance of documenting your methodologies and the reasoning behind them. Having this documentation can provide a solid defence should a client question or challenge your conclusions in the future, demonstrating the how and why of your calculations. What considerations factor into your sustainable withdrawal rate? Do you adhere to the often referenced 4% sustainable withdrawal rate proposed by William Bengen, or do you modify this percentage for UK investors? How do fees impact the sustainable withdrawal rate? Do you consider that the sustainable withdrawal rate might change for portfolios with different asset allocations? Do you apply a uniform sustainable withdrawal rate to all clients? What research and evidence support your approach? Determining a suitable withdrawal strategy is a significant aspect of assisting your clients with retirement planning. Your CRP is the perfect place to justify your thought process.

How much are you allocating to cash?

As discussed in last week’s newsletter: CRP Deep Dives: Decumulation Risks, sequencing risk can significantly influence the longevity of a pension pot. To mitigate this risk, some advisers adopt a bucket strategy or maintain a certain amount of cash ready for withdrawals. Some advisers avoid this approach and don’t place any more importance on cash than they would for an accumulation client.

Both approaches have their merits and can be backed by compelling arguments. The critical factor is to clarify your methodology and substantiate the reasoning behind it. This clarification promotes a consistent procedure across the firm and among clients, ensuring that your advice is robust, well-founded, and evidence-based.

What if things don’t go to plan?

The unpredictability of the future plays a significant role in making retirement planning a challenging task. Unforeseen events such as market downturns or significant life changes can disrupt even the most meticulously crafted plans, underscoring the need to prepare for the unexpected. What measures do you implement to counteract unexpected occurrences? Do you frequently engage in discussions about contingency plans with your clients? If so, at what stage do you determine that it’s necessary to resort to these contingency plans?

What probability of failure are you comfortable with?

Choosing a sustainable withdrawal rate often requires balancing a higher income against the risk of depleting the portfolio. Some clients might favour the potential of a higher income, despite the risk of it running out, as opposed to the certainty of a lower, but enduring income. Your CRP could be an opportunity to document the level of uncertainty you are typically willing to tolerate when deciding on a sustainable withdrawal rate, the reasoning behind that tolerance, and how you approach this compromise with clients.

Assumptions about longevity

Predicted longevity is a crucial factor in determining the sustainable withdrawal rate, and your methods for estimating probable longevity can be documented in a Centralised Retirement Proposition (CRP). Do you use a standard life expectancy for all clients? Do you rely on longevity data from authoritative sources like the Office for National Statistics? When advising a couple, do you factor in the likelihood of at least one partner reaching a specific age, or do you evaluate their life expectancies independently? Your CRP is the optimal platform to outline the assumptions you make regarding longevity and the process by which you arrive at these assumptions.

Establishing a resilient CRP requires recognising and mitigating risks to assure clients of a secure and sustainable retirement income. It’s crucial to craft strategies that resonate with clients’ risk tolerance, objectives, and personal circumstances. Although CRPs may not be heavily regulated, integrating these risk considerations can significantly enhance the quality and efficacy of your retirement planning services.  If you’re contemplating a review or implementation of your CRP, consider enlisting the expertise of our seasoned professionals. We specialise in constructing bespoke CRPs, finely tuned to meet your clients’ distinctive needs. Get in touch with us either online or by dialing 01472 728 030. We’re at your service, ready to deliver top-notch due diligence and investment research services.

Yes, keeping in touch with your clients regularly is a great thing to do, however, as you will no doubt know, the Financial Conduct Authority (FCA) also requires advisers who supply investment advice to do annual planning reviews in a formal way. Specifically, you should “agree with a client whether a periodic assessment of suitability will be performed. If periodic assessment is to be performed it must be at least annually and the continued suitability confirmed in writing”.

These annual planning reviews- which we can help with, are a valuable opportunity to have a really in-depth check-in with your client – and the best ones focus on the person, as well as the products.

So, while it is possible to include everything on one page, at We Complement we believe APRs should become a document of your client’s annual financial planning journey – not just a snapshot.

For example, while you need to include details of all current investments, their performance, and any recommendations you would make, a good APR will also appraise your customer’s circumstances – what are they investing for, how they are planning on making it work and any worries they may have.

Clearly, this is considerably more time consuming for an IFA – which is where the We Complement team come in.

We will work with you to develop a document which is personal to each client, while also ensuring it truly represents your brand. We will undertake all necessary research to emphasise the value you have provided during the previous 12 months – and how you will continue to do so in the future.

We can also access all the necessary information on your system, such as products, planning and risk profile, and add these to the APR document, giving an overall review that provides a truly detailed view of your client’s financial year.

We Complement believes that your annual planning reviews are a great opportunity to engage fully with the financial planning needs of your clients. Sending a one page summary just seems to be such a wasted opportunity not to take the chance to engage positively with them.

Once we have all the details we need, we go ahead and prepare the review, and typically produce reports in five to seven working days.

For more information about our annual review offering and complementary offerings, and how they can benefit you and your clients, please get in touch.

Are you ready to transform your advisory practice into a seamlessly efficient powerhouse? At We Complement, we understand the critical role client management plays in the success of adviser firms. Our Client Management Service will revolutionise the way you interact with clients, streamline administrative processes, and give you the time and confidence to grow your business.

Efficiency Redefined:

Say goodbye to complicated and disconnected processes! Nicola Porter, our Head of Operations, and our team know what works. They are focused on cutting out inefficiencies, so you can concentrate on what you do best—providing expert financial advice. With a keen eye for detail, they handle the complexities of data gathering and organisation, setting the stage for solid client recommendations.

Proactive Case Management:

Ever felt overwhelmed by administrative bottlenecks?  Yep, we understand, our team go beyond just managing cases; they relentlessly push for progress, refusing to accept delays. Your business deserves a dynamic force that keeps things moving, and our team is up to the challenge.

Seamless Communication:

Imagine a world where communication breakdowns are a thing of the past. We have mastered communication, and are always 5 steps ahead- never playing catchup.  We Complement ensures that information flows effortlessly between you, and your clients and anticipates the next steps. Fostering a collaborative environment that maximises productivity. Imagine the ease that comes with a well-connected team working in perfect harmony.

Why Choose We Complement’s Client Management Service?

Boosted Efficiency, Amplified Results:

Our streamlined administrative processes are designed to amplify your productivity. By optimising every step, we save you time, allowing you to focus on what truly matters—delivering exceptional financial advice and growing your client base.

Precision and Compliance:

Navigate regulatory requirements seamlessly with We Complement. Our client management service gives you access to a comprehensive suite of suitability templates our paraplanners designed with Consumer Duty in mind. Paired with our dedicated team of paraplanners, our unwavering commitment to technical accuracy guarantees not just compliance, but surpassing regulatory standards. Stay ahead confidently.

Enhanced Client Experience:

Elevate your client interactions with prompt, efficient service. Our service helps you to exceed client expectations, fostering strong relationships. We embed ourselves as part of your team and solidify your reputation as a trusted financial adviser.

Cost-Efficient Operations:

We Complement doesn’t just optimise your processes; we save you money. Inefficient processes can be costly. We will review your administrative functions, (How many different licenses are you paying for systems that have the same functions?) and make suggestions as to how you can cut down on both time and financial resources, ultimately boosting your bottom line.

Administrators serve as the first and last point of contact for clients, representing your business throughout. Acknowledging and valuing their skills is crucial for the success of your advisory firm. Whether you’re a financial adviser seeking improved efficiency or a business owner aiming to elevate the advice journey, We Complement provides an all-encompassing solution. Contact us online or call 01472 728 030 to discover how we can enhance your client management services.

When running a financial practice, precision, efficiency, and client-centricity are paramount. At the risk of repeating myself, the important roles that paraplanners and administrators play cannot be underestimated.At We Complement, we take pride in being more than just a team; we are your dedicated partners in taking your advisory practice to new heights. Our Client Management Service is designed with flexibility, remote collaboration, and technical expertise to meet the unique needs of your business.

Navigating Operational Excellence

Our primary mission is to be the driving force behind your operational efficiency. We understand that your time is a valuable resource, and by seamlessly managing all client-related tasks, we free you to focus on what matters most—fostering client relationships and growing your business. Whether you are looking for integration with your existing team or a comprehensive outsourced solution, our services are crafted to align seamlessly with your specific requirements.

Key Features: A Comprehensive Overview

One Ongoing Monthly Payment

Ensure uninterrupted support for your existing clients throughout the year with a straightforward and manageable single monthly payment.

Transparent Fee Structure

Our fees are calculated on a monthly cost-per-client basis, offering a transparent and customisable pricing model. Typically ranging from £50 to £85 per client per month, our fees are designed to cater to the diverse needs of your business.

Pre-Meeting Assistance

• Full diary management and client meeting scheduling to optimise your time.

• Rigorous compliance checks and proactive file updates to ensure regulatory adherence.
• Timely client information updates for a comprehensive understanding of client profiles.
• Conducting vulnerability assessments to prioritize client well-being.
• Regular updates on policy values and transaction history.
• Preparation of detailed portfolio reports and performance summaries from provider platforms.
• Crafting discussion points and confirming unused allowances for informed client interactions.

Post-Meeting Support

• Swift back-office updates post-client meetings.
• Implementation of post-meeting tasks to expedite the advisory process.
• Retrieval of the latest MiFID cost & charges statement for compliance.
• Expertly crafting and issuing suitability reports, including fund switches and rebalancing.
• Seamless back-office and portal maintenance.
• Proactive platform management
• Email administration.

One-Off Setup Fee

Experience a hassle-free onboarding process with a one-time setup fee of £1000 + VAT. This fee encompasses a comprehensive behind-the-scenes effort, including creating tailored process guides, collaborating with internal staff, and establishing efficient workflows.

Scalability Solutions

Are you planning for growth? We offer a new client onboarding service at a fixed price per client, ensuring a seamless and customised onboarding process.

The We Complement Process

1. Initial Discussion:

Connect with us for an in-depth conversation. Share your challenges, and together, we’ll identify how we can bring unparalleled value to your business.

2. Onboarding Meeting:

We present you with a tailored onboarding process, showcasing the specific value we bring to your operations.

3. Implementation:

Experience a smooth onboarding period estimated at 4 to 5 weeks, finely tuned to your firm’s unique requirements and procedures.

Elevate Your Client’s Experience

Ready to transform your client management experience? Schedule a meeting with us to discuss your firm’s unique requirements. We are eager to partner with you, supporting your success and contributing to the continued excellence of your financial advisory practice. Embrace a new era of efficiency and client-centricity with We Complement’s Client Management Service.

Tis the season of giving, and what better gift to unwrap than the timeless knowledge tucked between the covers of a good book? Recently, we tasked Tony Slimmings to share his top picks for essential reading for financial planners. Something an avid reader like Tony found somewhat of a challenge!

I was asked to write a 500-word piece on my 5 books that would make it on my essential reading for a financial planner list…I managed to get it down to 6 and still missed dozens of other good reads!

Firstly, I know there are some great and obvious financial planning-related books, just a few being:

• The Psychology of Money by Morgan Housel,
• Facilitating Financial Health: Tools for Financial Planners, Coaches, and Therapists by Brad and Ted Klontz and Rick Kahler,
• Behavioural Investing: A Practitioners Guide to Applying Behavioural Finance by James Montier,
• The Client-centered Financial Adviser: The ultimate guide to building high-trust, high-profit relationships and a thriving practice by John Dashfield

However, in this article, I wanted to touch on books that I believe are essential reading for financial planners because they are good for the client!

I am 59 and have been involved in the world of financial planning for 30+ years, so some of these titles may be a little dated or have been superseded but they are still relevant today.

As a starter for ten (well 6) if there is a financial planner alive who has not read Thinking Fast and Slow by Danial Kahneman just go buy it! I would regard this as almost as essential reading as any technical exam you might have taken.

One of my favourites is The Number by Lee Eisenberg… Too many people are focused on accumulating wealth without a true understanding of what the destination will look like. Just give this book to each of your prospects and clients and ask them to call you when they have read it and are ready to talk!

How Clients Buy by Tom McMakin and Doug Fletcher is aimed squarely at the dark art of selling! Not selling a product but selling the benefit of you as a consultant. These days the psychology of clients and how they think about their money is as popular as ever (believe me it was not always so). Sometimes, however, just understanding how your client makes their ‘buying’ decisions can be more useful. If they never buy ‘you’ they will never benefit from you.

How To Be More Pirate – Sam Connif and Alex Barker is a brilliant little book about challenging the prevailing paradigms. Financial services and financial planning folks tend to be quite conservative and accept new concepts very slowly. I really believe the future of financial planning will look a lot different to the one we inhabit today, and it will be the ‘ethical pirates’ who achieve this.

It’s Not About You by Bob Burg and John David Mann is another wonderful little book that anybody in business or dealing directly with customers should read. A light-hearted read with a powerful message.

Finally, The Richest Man in Babylon by George Clason. An absolute classic using fables to get across all you ever need to know about the essence of financial planning. Every apprentice, graduate, and new employee setting out on life’s journey should be given this book to read. Financial Planning is not about numbers, it is about understanding sound financial management and this little book has this by the bucket.

Sorry, 550 words – what books would you love to receive this Christmas?

Happy reading and wishing you all a festive season filled with knowledge and joy!

Tony Slimmings

My essential reads!

Thinking Fast and Slow by Danial Kahneman

The Number by Lee Eisenberg

How Clients Buy by Tom McMakin and Doug Fletcher

How To: Be More Pirate – Sam Connif and Alex Barker

It’s Not About You by Bob Burg and John David Mann

The Richest Man in Babylon by George Clason

Behavioural Investing: A Practitioner’s Guide to Applying Behavioural Finance by James Montier

The Psychology of Money by Morgan Housel

Facilitating Financial Health: Tools for Financial Planners, Coaches, and Therapists by Brad and Ted Klontz and Rick Kahler

The Client-centered Financial Adviser: The ultimate guide to building high-trust, high-profit relationships and a thriving practice by John Dashfield

Unlocking Efficiency: 5 Questions for Seamless Onboarding

In this weeks newsletter we unravel outsourced adviser support and the seamless journey of collaboration that unfolds when partnering with We Complement. From the very first inquiry, we set the stage for what is to come, redefining the conventional approach to outsourced adviser support. At the core of our methodology is how can we help you to work more efficiently and ultimately spend more time doing what you do best, giving excellent advice to your clients.

The findings of the Financial Lives 2022 survey reveal an ongoing challenge for consumers, as they persistently encounter issues related to customer services and communications that fail to facilitate informed decision-making. Over the period up to May 2022, a staggering 4.3 million individuals received information from their service providers that either proved unintelligible, did not meet their specific needs, or arrived untimely. These findings make it clear that more advisers need to engage in outsourced adviser support.

We create a strategic framework designed to elevate your operations by integrating our expertise with your unique advice journey.

Our commitment to knowing your business inside out isn’t just for our benefit; it’s a strategic move to enhance efficiency for both parties. As part of our onboarding process, we pose five key questions that go beyond the surface, ensuring a seamless collaboration.

Do You Have a Centralised Investment Proposition (CIP) and a Centralised Advice Framework (CAF)?

Implementing a robust Centralised Investment Proposition (CIP) and a Centralised Advice Framework (CAF) is more than a compliance checkbox. It’s a strategic move that aligns with the FCA’s PROD reviews, showcasing your commitment to delivering consistent and reliable outcomes for clients. Beyond compliance, a centralised system significantly reduces the risk of errors and omissions, enhancing client satisfaction, potentially leading to positive referrals and new business opportunities.

What Risk Profiling Procedures Do You Have?

Risk profiling isn’t just about ticking a box; it’s a crucial component that dovetails into the recommended investment solutions. We collaborate with you to navigate through various risk profiling tools, ensuring a seamless fit for your firm. Our expertise allows us to contribute insights beyond tool selection, recording discussions with clients comprehensively.

Do You Have Your Own Suitability and Annual Review Templates?

We understand the sensitivity around templates, and our approach is collaborative. Rather than dismantling existing templates, we work with you to compile necessary information that satisfies both clients and compliance. Our templates go beyond the conventional outsourced adviser support, offering detailed and layman-friendly justifications for advice, ensuring transparency and client understanding.

Do You Have Your Own Internal Compliance/File Checking Procedures?

Acknowledging the evolving compliance landscape, we align our work with your internal compliance procedures. Our specialised expertise and resources enhance turnaround times, accuracy, and consistency in report production. By working closely with your compliance framework, we ensure positive gradings for all files, meeting the required standards.

Are You Open to Us Working Closely With Your Admin Team?

Integration into your admin function isn’t just about collaboration; it’s a strategic move to elevate client satisfaction. By focusing on providing top-notch financial planning and service, you create a ripple effect of satisfaction, leading to more referrals and business expansion without the fear of complaints.

While these questions are a cornerstone of our onboarding process, they represent a starting point. We invite you to explore the multitude of ways your business could benefit from our collaboration. Contact us online or call 01472 728 030 to initiate a discussion.

Your success is our commitment, and efficiency is the key.🚀💼 Visit our website for more information.

Navigating Capacity for Loss: Key Insights for Savvy Paraplanners

One common misconception in the paraplanning world is the belief that attitude to risk takes precedence over capacity for loss, when, in reality, it’s often the other way around. Understanding a client’s financial ability to absorb losses is paramount, and here are five crucial points to consider when assessing capacity for loss:

1. FCA Mandate on Capacity for Loss
In March 2021, the Financial Conduct Authority (FCA) emphasised the importance of considering capacity for loss in suitability reports. The FCA defines it as the customer’s ability to absorb falls in the value of their investment, especially if it would materially impact their standard of living. This underscores the need for a thorough assessment beyond just attitude to risk.

2. Factors Influencing Capacity for Loss
Assessing capacity for loss requires a comprehensive look at various financial aspects:
– Income needs
– Present and future income sources
– Other assets
– Expected inheritances
– Time horizon before investment withdrawal

Documenting these details in the fact-find is essential for a holistic understanding.

3. Distinguishing Between Types of Losses
Paraplanners should differentiate between permanent and temporary losses. Understanding whether a client can recover from a loss over time is crucial. This nuanced evaluation ensures tailored recommendations based on the specific nature of potential losses.

4. Integration of Attitude to Risk and Capacity for Loss
While distinct, attitude to risk and capacity for loss should be assessed together. For instance, a client expressing a willingness to take high risks but having a low capacity for loss implies that the latter will dictate recommended solutions. This integrated approach provides a balanced view of the client’s financial landscape.

5. Precision with Cashflow Modelling
There’s no one-size-fits-all method for assessing capacity for loss, but cashflow modelling stands out for its precision. Calculating losses in percentage terms and aligning them with a client’s cashflow forecast provides a tangible understanding. Additionally, capacity for loss questionnaires and examining income requirements can offer valuable insights.

Tony’s thoughts

I see many examples of capacity for loss only given a cursory nod by advisers with the product selection and tax tail wagging the recommendations. If someone does not have three to six months of available cash to cover income or sufficient cash to cover known expenditure (holidays, car purchase, home improvements etc.) in the next 12 months then quite simply they should not be investing for five years plus! My other bug bear is the immediate use of pensions due to the tax relief available rather than a sensible use of say ISAs to provide a level of medium term cash needs, given that pension fund access could be decades away.

Top Tip: Prioritise Capacity for Loss
As Hannah suggests place capacity for loss as the primary decision-maker, superseding attitude to investment risk. This approach ensures a solid foundation for crafting well-informed and client-centric recommendations.

**Get in Touch**
If you want to delve deeper into capacity for loss discussions or ensure the robustness of your suitability reports, reach out to us at hello@wecomplement.co.uk or call 01472 728 030.

Navigate capacity for loss wisely, and let’s elevate the standard of financial planning together! 🚀💡 #Paraplanning #FinancialAdvice #CapacityForLoss #FCAGuidance #InvestmentRisk