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‘Triple threat’ to retirement portfolios offsets advice opportunity

Yasmine Masi25 October 2021
Coins stacked in piles underneath an umbrella

A demographic wave of people looking for retirement advice has presented an opportunity for financial advisers but a ‘triple threat’ to retirement portfolios could pose some challenges, attendees at the Allianz Retire+ webinar heard.

The surge of people belonging to the baby boomer generation seeking retirement financial advice presents an opportunity for advisers to continue in the retirement segment.

“What’s fuelling this opportunity is the fact that 7,980 people retired in Australia just last week,” said Tim Dowling, Investment Specialist at Allianz Retire+.

“This cohort of people over the next 15 years will bring $2 trillion of assets from accumulation to decumulation. Capturing half a per cent equates to $275 million of new client assets every single year.”

Dowling signalled a light at the end of the tunnel for advisers and their retiree clients, after the difficult time they’ve had in navigating all the changes post-Royal Commission.

“I think leaving the Royal Commission behind us, having adopted the learnings and adhering and adjusting to the demanding compliance regime, it’s good to remember that advice is a critical component in people’s lives,” he said.

“People are happier and ultimately healthier when they do receive financial advice. For advisers, the opportunity has never been brighter.”

But the webinar also highlighted a series of risks that could potentially impact the way advisers build portfolios and affect the livelihoods of retirees. An online poll posed towards advisers revealed fixed income (51.1%) was the most significant concern in building retirement portfolios, followed by cash (27.7%) and equities (21.3%).

“There are significant risks in each one of them for retiring clients,” Dowling said.

“But there is also a place for them all, as long as you are adequately safeguarding against inherent retirement risks.”

Dowling also said while cash holdings and term deposits offer certainty of return and protection in retirement portfolios, in this environment they are the first ‘triple threat’.

“Threat one is the fact that cash is no longer king,” he said.

“Since the 2008 high of 8.25%, we’ve now fallen by 97%, down to only 25 basis points. Cash is going backwards, in real terms – it’s locking in a negative return.”

The second threat is the low yield environment that forces investors to look for more attractive yield up the risk curve.

“Portfolios need to take on greater and greater levels of private assets and in turn greater levels of risk,” Dowling said. “This is a problem for advisers because we know that their retiree clients struggle to take on more risk.”

The third threat is coping with an equity market correction, as Dowling said retirees cannot risk excessive equity exposure or be left vulnerable to longevity or sequencing risks.

Dowling urged advisers to take on these investment challenges with retirement-specific solutions, with products that generate higher returns and offer downside protection.

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