Drawdown review guide: How to assess ongoing suitability

by Patrick Norwood and Richard Hulbert
Insight Consultants

July 2020

COVID-19 has not only changed the way financial advisers work, but it has also brought with it increased uncertainty. Stock markets around the world fell by up to 35% between the start of the year and late-March, creating the perfect storm for those in drawdown that many may never fully recover from, primarily due to sequencing risk.

This CPD accredited guide highlights the key topics advisers and paraplanners can consider during periodic drawdown review to ensure sustainable and suitable advice, including:

  1. Initial capital balance
  2. Withdrawal amount, ie income
  3. Duration (the term the withdrawals are required for)
  4. Level of sequence risk
  5. Reduction in yield, ie cost
  6. Residual capital (the amount the client wishes to have at the end of the duration)

When an income requirement is not being met, advisers have an array of options to consider including, restructuring the portfolio, reducing withdrawals to a sustainable level, suspending withdrawals for a period of time, stopping withdrawals entirely, at least partial annuitisation and taking into consideration a client’s wealth outside of the drawdown arrangement.

This in-depth guide contains resources advisers can use with their clients such as an explanation on sequence risk. In addition, to help keep advice on track there are applicable work resources, including a review template and a suitability checklist.

The document is accredited by the CII/PFS and CISI for up to 30 minutes of structured CPD.

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