Dynamic asset allocation crucial for retirement
Financial advisers advising on retirement were forgetting the importance of asset allocation, particularly dynamic asset allocation strategies for clients to ensure a smooth transition to and through retirement, research showed.
Titled ‘The Role of Asset Allocation in Navigating the Retirement Risk Zone', the report conducted on behalf of the Financial Services Institute of Australasia (FINSIA) stressed the importance of dynamic asset allocation in designing portfolios for retiring Australians.
The report said the simplicity of a simple glide path may attract advisers to lead investors on this path but events of the global financial crisis highlighted the limitations of the strategy.
"If we agree that markets are dynamic, why do our approaches to asset allocation not similarly reflect this dynamism," the report asked.
FINSIA chief executive, Russell Thomas, said sustainable retirement income will become paramount as the Australian super system is set to grow to $9 trillion in assets by 2040.
"A strategy that considers portfolio targets, the financial risks associated with approaching retirement, and market tracking techniques can dramatically improve sustainability of superannuation savings," Thomas said.
The report showed advisers should direct sophisticated investors to take a "market-aware" approach to investing, where they consider when the stock market is over-valued or under-valued relative to the historical average.
Investors could also be directed to use outcome or goal based investing, where the asset portfolio is constructed to meet both current and future liabilities.
"This requires a laser-like focus on the outcome (say, the investor's liability of a sustainable retirement income stream)," the report said.
"This can be challenging in a superannuation/DC framework where we largely focus success on a pot-of-gold at retirement, not a retirement income stream through retirement."
AUTHOR
Malavika Santhebennur
Recommended for you
A financial advice firm has been penalised $11 million in the Federal Court for providing ‘cookie cutter advice’ to its clients and breaching conflicted remuneration rules.
Insignia Financial has experienced total quarterly net outflows of $1.8 billion as a result of client rebalancing, while its multi-asset flows halved from the prior quarter.
Prime Financial is looking to shed its “sleeping giant” reputation with larger M&A transactions going forward, having agreed to acquire research firm Lincoln Indicators.
An affiliate of Pinnacle Investment Management has expanded its reach with a London office as the fund manager seeks to grow its overseas distribution into the UK and Europe.
