The advent of freedom and choice does not mean reinventing the wheel; the solutions are already there, says AXA IM's Stephanie Condra. 

Many expected to see an influx of new investment solutions that solved the seemingly ‘new’ problems facing investors.

However, these early innovations focused on the wrong problem. The investment needs of people in retirement did not change, it was their behaviour that changed.

Investors have more flexibility than ever before and may prioritise these needs differently, but there has always been a range of solutions to choose from, as shown in table one.

Table one: The needs of investors in retirement

Need

Cover current expenses

Generate stable, predictable income to cover day-to-day living expenses

Receive additional income to cover discretionary spending

Grow capital to preserve pricing power and increase estate value

Existing solutions

  • Bank account

  • Cash funds

  • Term deposits

  • Short duration bond funds

  • Annuities

  • Protected income solutions

  • Rental income

  • Income equities

  • Strategic bond funds

  • Multi-asset income strategies

  • Equity funds

  • Liquid real estate

  • Property holdings

  • Multi-asset growth  strategies

  • Protected growth solutions

Source: AXA Investment Managers

Since the reforms were announced, innovation from fund managers appears focused on developing new or modified solutions within each need.

Those that have seen particular attention – through new fund launches or adjusted product features – are emboldened in table one.

But the disruption that has not yet been addressed is the change in investor behaviour.

Individual attention

Like a shopper walking into a grocery store, freedom and choice means investors are not only being asked how much time they want to spend in each aisle, but also to pick the best products from each shelf.

In some cases the individual might get professional help or might be given a short list of ideas – guidance – but in many cases they are left on their own to pick out the ingredients for successful retirement. 

The investment needs of people in retirement did not change, it was their behaviour that changed

Future innovation will focus on helping investors find the right solutions for their unique needs.

Part of the solution will be to make investors more informed and there will be more innovative educational tools that better prepare individuals for the decisions they need to make.

These tools will need to leverage the best ideas from within and outside the industry, such as the education and technology sectors.

The other part of the plan will likely be in the form of more ‘ready-made’ options that package products together to meet more than one need.

The success of these concepts will be dependent on other innovations across the industry – reflecting new buying behaviours, leveraging big data, and incorporating new models of advice.

And the success of these innovations requires all stakeholders to buy into the idea that the problem that needs to be solved is finding new ways of meeting the familiar needs of investors.

Stephanie Condra is retirement market strategist at AXA Investment Managers

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