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For Professional Advisers only

The Insider guide to drawdown
In association with BlackRock

Interview with Wayne Tandy, Tandy Financial Services

With over 30 years of experience in Financial Services, Wayne works with both private clients to help protect and maintain wealth, providing advice and services to business owners and also with various difference company benefits for their employees. Outside of work he enjoys family life by maintaining a healthy work-life balance and even finds time to enjoy golf and play squash to keep fit.

Which questions do you use with clients when starting the conversation about retirement?

It starts with how much they think they’ll need in retirement, any big capital expenditures, any other pots?  We’ll know a lot of this already because of their ISAs and other investments but ultimately, I try to give them the opportunity to inform us while they’re still healthy enough.

We’ll look at what they have planned, what they want to do, whether there’s a real desire to leave money to the children. I’ve got clients who have helped their kids by taking out some tax-free cash to give them money for a deposit for a mortgage because people can’t get on the property ladder at the moment.

I’ll ask how they’ll feel if there’s a drop in income, are they happy for me to say, from a sense-check point of view, ‘this is a good level of income and if you go over that you’re going to start to deplete, how do you feel about that if the pot is going down?’ But they’re all different.

Some will accept that depletion because they’ve got other assets. Most people have got state pensions that kick in, so from a couple’s point of view, that could be £20k from the state scheme.

One client and his wife want to spend time travelling. But equally, if his pot starts to deplete, he’s got a skill he can still do post-retirement – he’s a lorry driver by trade.

Every client is different and our role is to try and get under their skin, find out what they’re really trying to achieve.

“I’ve got clients who have helped their kids by taking out some tax-free cash to give them money for a deposit for a mortgage because people can’t get on the property ladder at the moment.”

Are there any typical questions you get asked by clients, or indeed any unusual or tricky ones?

Typically, the $64,000 question is, ‘what’s a good level of income relative to the pot?’ Most clients will ask that, or, ‘how much do you think I’m going to return?’

We can give them those figures, but it depends on what they want to achieve. If someone really wants to have a great time, have holidays and they accept the fact that the pot will deplete, I’m happy as an adviser to give them that opportunity because we’re only here for a finite number of years. It doesn’t matter if you’ve got half a million pounds left in your pot if you’ve been miserable.

People’s attitudes have changed a lot since Covid. People are looking to retire early, even if partial or full retirement. I’m increasingly being asked, ‘have I got enough money to retire now even though my state pension isn’t kicking in for two or three years?’

Generally, most people we speak to are fairly well-versed. I think as people approach retirement, they have often done a lot of reading around the subject, know broadly what they’re trying to achieve but they need us to make sure they don’t drop any clangers from a tax or death benefits point of view.

What is a realistic and safe withdrawal figure?

We don’t have a company line as such, but typically, somewhere between 3% and 4% is sort of an accepted amount. I think that is seen as a generally safe level over a long period for a low-to-medium risk client. But it also depends on the charges because that will impact quite significantly.

Some people have taken more, but I would say the right way of approaching it is to pull out what you need and leave the rest to provide a hedge for future years. Most who aren’t stripping the money out are just taking out what they need because obviously, if you take it out of a pension environment and you put it in the bank, the returns are massively different.

Sometimes there’s a big capital need, but it’s on an ad hoc basis, which has helped with the sustainability of the funds. I keep saying, go on that holiday, do what you want to the garden, because all of our time is limited, so they need to be enjoying it.

How do you tackle the conversation about life expectancy?

There are clients whose mother lived to 80 and those whose mum will be still alive and kicking, aged 102. The modelling we use provides the age you’re expected to die given the age you are now, whether that’s 85 or 87.

It can be a bit of an eyeopener for some people, which then prompts more discussion. They’ll say, ‘well, even if I’m here at 89, I’m not going to be spending the money I’m spending now’. They accept their income needs will fall massively.

Everyone is different but most people I’ve spoken to aren’t actually worried about dying at 70. They’re more concerned about living too long, having too much money left with no quality of life.

One client in a care home said to me, ‘I want to be spending this money until I’m late-70s because beyond then I’m going to struggle’.

If you get to 80, there’s a one in four chance you’re going to live until 100, or thereabouts, if you look at the stats. Mortality is a very interesting conversation, but the software helps because it puts a line in the sand as to when they’re expected to die, so it helps frame the conversation objectively.

How do you assess attitude to risk and capacity for loss for clients in decumulation?

We tend to do it before they go to ‘switch it on’, so we can manoeuvre that change if need be. Most clients’ attitudes change; their risk profile comes down.

When you’re accumulating wealth, you’ve got the opportunity to earn more, so you can ride out the peaks and troughs more easily. When you’re in the decumulation stage, you tend to get a little bit more possessive of what you have, so the risk profiles come down, often one or two levels. Not all the time, but it’s very rare we have clients who won’t accept risk at all because they’ve been with us through the journey, so they understand the volatility of returns.

I’ve said risk but really, we see it as intertwined with capacity for loss. We may talk about them separately from a ‘reasons why’ perspective, but effectively, they are linked because the more risk you take, generally, you’re accepting a higher capacity for loss.

It’s more that the client’s capacity for loss reduces because that’s going to help their pot sustainability. But equally, I’ve some clients that are just trying to take their money out in a tax-efficient way. While they may have mapped higher, our conversations have led to them coming down a level to better withstand volatility, or else it could run out a lot sooner.

“When you’re accumulating wealth, you’ve got the opportunity to earn more, so you can ride out the peaks and troughs more easily. When you’re in the decumulation stage, you tend to get a little bit more possessive of what you have, so the risk profiles come down, often one or two levels.”

How do you describe and discuss the issue of income sustainability with clients considering drawdown?

When we look at sequencing risk, we will discourage clients from stripping out a lot of money from their higher-risk funds because it could significantly hit their potential for income generation.

. For instance, are we just looking at drawdown, or have they got GIAs (general investment accounts) as well? Have they got income generated from an ISA or premium bond exposure?

One of the biggest considerations of where to take your income is tax – and I’d include IHT in that. So, you’d want to try and deplete a GIA, which can be a bit awkward sometimes because obviously we move money from a GIA to an ISA on a platform annually. On the one hand you want to try and fill up your ISA allowance, but sometimes it’s better to take money out of the GIA than the pension because the tax breaks are much better. It all depends on where clients are and what they have.

Which investment strategy or strategies do you typically recommend for clients in drawdown?

It depends on the client. We use multi-managers who will use risk-graded funds, which we’ll sense check against the client’s risk profile every year or two.

We look to risk profile them before they enter drawdown, so we can position appropriately, but then we’ll still keep risk-profiling them, even in drawdown.

To what extent do you talk about ESG with drawdown clients?

We do a bit with ESG funds; most clients want some degree of ESG in there, maybe not wholly, but the ESG type funds aren’t low risk, they’re medium, or low-to-medium risk.

Because of the way they’re constructed, we tend to say if you want some ESG-type investments, we’ll only put 10%-20% in. But they often do want it – even drawdown clients – particularly for their grandchildren, when they think about what the world will be like for them.

We’ve only looked at ESG principles and investments properly for about the last 18 months, incorporating it into our process. Back when I first looked at them personally – 20-odd years ago – the investment returns weren’t as good as the non-green investments. But we’ve seen that shift a lot, especially in the past five years or so.

How often do you review clients in decumulation?

For lots of them, it’s once every six months but with most of them it’s at least every year because it’s important to have that conversation.

Where clients are taking regular income, we’ll explain our point of view. It gets a bit busy, but we tend to try and squeeze in a number of reviews between January and mid-March, just to make sure we’ve topped up any allowance from a tax-planning perspective. Over and above that, we’re in regular contact, so if clients need money on an ad hoc basis, we can process that as well.

It depends on the client. The ones we see more frequently – so twice a year – tend to have other investments as well, ISAs and GIAs and so on, so then it becomes about deciding where they’re taking their income and the tax implications, as I mentioned before.

How do you stress-test the plan?

We use a system called CashCalc which is a cashflow modeller. There’s some stress-testing on there that we can build into the funds to say, ‘if this happens, if the market falls, this is going to be the likely effect’.

It makes for an interesting conversation, but ultimately, depending on the client’s risk profile, they’ll accept that fluctuation because they understand it’s a long-term investment.

It’s more often, ‘if this happens, how would you feel if you lost this amount from your pot and it affected your income?’. It’s about how much it affects the income on an individual basis, as it might only be a 10% drop in income, relative to the pot.

Those conversations aren’t as frightening as they could be. Most of our clients have been accumulating wealth, they have seen markets go up and down. When Covid hit, everything fell off a cliff, some funds fell by 20% but they’re now back to where they were, and beyond.

It’s helping them gain that understanding.

Our driver is that you need the ability to ride out the peaks and troughs, which is brutally important from an investment point of view. Most clients’ cashflow projections have a bit of fat built in. We get them to complete their essential items and holidays and stuff. Generally, they might have over-egged the holiday figure quite high because they hoped to do X, but if at the review, things look a bit tight, perhaps they will take three holidays rather than four.

“Those conversations aren’t as frightening as they could be. Most of our clients have been accumulating wealth, they have seen markets go up and down. When Covid hit, everything fell off a cliff, some funds fell by 20% but they’re now back to where they were, and beyond.”

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