Lower returns, risky investments and climate change will dominate headlines over the coming years as money managers navigate a brave new world.
I began my career as a finance journalist back in 2010 with Murdoch and end it this month as the outgoing editor of ifa. It has been a good run.
Over the years I’ve been deeply embedded within the financial services community’s various cliques, from mortgages and real estate as editor of The Adviser, Mortgage Business and Real Estate Business, to superannuation and advice as editor of Momentum Media’s wealth platforms.
Nothing catches an editor’s eye like a good crisis, and in this regard the finance patch has been very good to me. If the last financial crisis was caused by a mixture of ignorance and greed, I believe the next one will be triggered by something even more ravenous: fear.
The retirement crisis is already upon us and thankfully large financial institutions are taking innovative steps towards a solution that can fund people from their last day of work until the day they die.
When I caught up with Allianz Retire+ CEO Matt Rady last year, he told me that the group asked retirees directly what their biggest concerns were before embarking on a potential solution.
The group discovered that the biggest concern retirees have is running out of money. They fear that more than they fear death, which is really saying something.
Driven by this fear, those looking to secure a retirement income are in a vulnerable position as they look for answers in a world of record-low rates. There is now a real danger that these investors, driven by fear and hungry for yield, will consider risky investments.
There is already clear evidence of investors moving further down the risk curve in order to generate the returns they have always expected to receive from traditionally conservative income-generating assets.
Australia’s former treasurer Peter Costello, chair of the $166 billion Future Fund, was recently quoted in The Australian Financial Review warning that mum-and-dad investors, including retirees, are being lured by advertised investment yields of 5 per cent.
The point Mr Costello is making here is an important one: a 5 per cent yield in today’s world is now considered a risky asset.
But what is the alternative? Keeping your money in a term deposit won’t do much to allay fears of going broke in retirement. The necessity of retirement income is unfortunately a driving force that could tip a significant cohort of investors into risk assets like unsecured debt and junk bonds, and potentially another financial crisis.
In this climate, the need for good financial advice has never been more important. With only 20 per cent of Australians being advised on their money matters, the risk is with the unadvised majority.
As the advice profession undergoes its own challenges, I hope that the industry emerges stronger and ready to guide a greater number of Australians through their fears and towards a positive financial future.
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