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Rate cut puts advisers to work

Financial planners may need to re-assess their clients’ portfolio structure, debt and income needs following the Reserve Bank of Australia’s decision to cut the official cash rate yesterday.

Speaking to ifa, ipac Western Australia chief executive Patrick Canion said the decision to cut the rate by 25 basis points will impact the work of advisers.

“For planners it means more work generally with each of our clients, either to restructure portfolios to ensure the right amount of income is still being generated by the capital, or helping clients restructure debt to take advantage of it, or reviewing their Centrelink entitlements,” Mr Canion said.

More broadly, the advice executive questioned Assistant Treasurer David Bradbury’s assertion that “all families and small businesses” will welcome the cash rate reduction.

“For people in debt (ie mortgage) reduction of interest is a good thing because if they keep repayments the same then obviously they will pay off debt quicker,” Mr Canion said.

“But for self-funded retirees, or pensioners, who rely on interest income to provide their income, it obviously means their income reduces.

“Typically, this would mean that they would need to consider alternative sources of income, such as dividends or rent, to replace that income stream.

“Small businesses don’t get too excited because banks usually use these reductions as a means to increase their margins rather than pass on the reduction.”

While for many, lower rates will be a positive in the current environment, “it just isn’t as simple as saying ‘lower is better’ or ‘higher is bad’,” Mr Canion said.