More understanding needed for high yield investments
Financial advisers are increasingly tempted to move into assets that are not widely understood but favoured thanks to attractive higher rates of interest on offer, Mason Stevens believe.
The firm said despite the search for yield, advisers should be better informed about the risks associated with high yield investment opportunities in the market.
It said advisers needed to consider the liquidity and market risk as well as correlation risks associated with higher yielding opportunistic investments.
Mason Stevens managing director, Thomas Bignill, said: "We see how this can be appealing in the short-term as advisers seek to meet client cashflow requirements".
Bignill noted that advisers were eager to learn more about fixed income opportunities too.
"What we are seeing is a renewed energy amongst advisers on the role that fixed income can play in asset allocation. By investing in high quality short-to-medium term bonds, fixed income can potentially facilitate the preservation of wealth," he said.
"Fixed income is a traditional asset class that fits well into client portfolios — particularly for those in pension phase. It's about consistency of income and that resonates with the end client."
Mason Stevens said to get the best out of fixed income investments, advisers should:
- Understand what you are recommending;
- Take a diversified approach to generating income; and
- Look for independence.
Recommended for you
Money Management examines the share price of financial advice licensees over one year to 31 March, with M&A actions in the final quarter having a positive effect for two licensees.
A $3.5 million settlement for victims of Melissa Caddick has been approved by the Federal Court following an initial agreement last December.
The Reserve Bank of Australia has delivered its first rate decision since the introduction of a new board structure last month.
Digital advice provider Otivo has launched an interactive tool, powered by artificial intelligence and Otivo’s own advice engine, to help answer client questions.
