Advisers urged to rethink retirement advice

An industry expert says financial planners need to rethink the way they advise retiring clients to better meet their changing attitudes to risk and address their need for ongoing income streams.

Jeff Rogers, chief investment officer at ipac said the thinking around superannuation needs to develop to form a better balance between the accumulation and drawdown phases, and it starts with a different way of advising.

Rogers suggested that rather than starting with a retiring client’s assets and looking at what to invest in, advisers should be focusing on the liabilities – the lifestyle needs that require funding – and build asset portfolios to meet those needs.

He said someone drawing down on their super requires three types of income: regular to fund everyday lifestyle, discretionary capital for ‘living a good life’ and longer-term growth to fund goals like endowment or leaving a legacy.

Advisers should then work out how to allocate for each of these three types of income and invest in portfolios accordingly, Rogers said.

“It’s not good enough to say ‘We’ve got a really good investment portfolio line-up. Clients, you line up and look at how you want to use them’,” he said.

This change in thinking came about from the realisation that clients focus on their returns in terms of volatility, and hence returns need to be viewed from their perspective in order to meet expectations in a post-retirement market, Rogers said.

As the system is in its relative infancy, thinking around superannuation has concentrated on ensuring that there will be an income once a person reaches retirement.

“But ultimately it is going to focus a lot more on what happens in retirement as financial assets are consumed. The question of income stream will become dominant.”