While inflation has not been top of mind for some time, many clients – particularly those nearing retirement – are conscious of mitigating this risk in their investment approach, delegates to the recent ifa Inflation Risk Roundable said.
“Especially for our older clients their key concerns are their health, their family and third is actually inflation – they don’t call it inflation but they’re worried that they’re not going to be able to pay for the things they need – and funnily enough, health is a major driver of inflation,” said Quantum Financial principal Tim Mackay.
Some clients are indicating demand for inflation-linked financial products, Mr Mackay said, describing these product offerings as “ahead of the curve”.
Shadforth Financial Group private client adviser Jamie McKay said that client concerns over inflation tend to reflect demographics.
“For younger clients, they have no experience of what inflation really means. With older clients, as soon as you mention inflation they recall those [United States President Ronald] Reagan comments and they talk about when their mortgage rates hit 19 per cent and how difficult that was,” Mr McKay said.
“The other point I’d make is it’s important to talk with clients about how inflation may impact their day-to-day finances, things like cash flow management and modelling for clients.”
Andrew Zbik, senior financial planner at non-aligned firm Omniwealth, said retirement-focused clients have started becoming more receptive to discussions about inflation.
“[Inflation] applies to everyone and it’s a discussion I am having a lot more with my retired clients. The last five years there has been a tendency to just sit in cash, but I have been having the conversation about having some equity exposure or property exposure, because this will help you beat inflation,” Mr Zbik said.
Reflecting on the experiences of the client-facing roundtable delegates, MLC chief investment officer Jonathan Armitage said the whole industry had a responsibility to ensure investment portfolios were reasonably safeguarded from inflation risk.
“We need to make sure that we have educated our clients and also that we have the products and options our clients need as part of their investment portfolio,” he said.
Agree Neil…one of the flaws in risk profiling as we know it…letting a client’s emotions direct how their portfolio should be managed. Client: “I’m scared, what should we do?” Adviser: “Let’s do another risk profile document…oh look you’re conservative now and don’t care about inflation and just want capital protection…we better sell everything”
The best hedge against inflation is growth assets (eg shares).
I saw more than a few planners buckle under the pressure of the GFC and move their clients to cash.
Planners need to show a bit more leadership during times of stress. Otherwise what use are we?
Any planner worth their reputation does have inflation on the agenda. Longevity and planning issues such as inflation are an integral component. Surprized this issue makes front page, then again there are many planners who haven’t experienced inflation but training and education should have the reality instilled in their planning.