-
Get the latest news! Subscribe to the ifa bulletin
Powered by
MOMENTUM
MEDIA
Get the latest news! Subscribe to the ifa bulletin
Promoted by
While the mantra “what I don’t know can’t hurt me” might work in some situations, when it comes to knowing what your clients think of you, what you don’t know definitely can hurt. Knowing if your clients are dissatisfied in any way is crucial if you have any chance of nipping trouble spots in the bud.
The FPA will be holding meetings with Assistant Treasurer and Minister for Small Business Kelly O'Dwyer to discuss the Financial System Inquiry.
Ignition Wealth was recognised as best robo-advice innovator at last week's Afiniation Showcase in Sydney.
Promoted by
Increased caution when using fixed income to lower overall portfolio risk
The AIOFP has launched a new campaign entitled ‘Battle of Fairness’ encouraging all advisers to make contact with government officials in response to the recent risk reforms.
We would like to ask any adviser that will be affected by the proposed reforms to make a stand and contact their local MP. To make this process as easy as possible simply cut and paste the letter below, pick your local MP’s email from the list provided and send.
Read more: Calling on all financial advisers, time to make a difference
Promoted by 
If a client were to receive a windfall inheritance, they may be tempted to take it as a lump sum of cash; however it may not be the best approach. It’s important to carefully manage any tax liabilities associated with inheriting, and consider how best the inheritance should be used for your clients’ situation.
The same can be said when it comes to superannuation. The Financial System Inquiry (FSI) report released in December 2014 concluded the purpose of superannuation is to provide a retirement income, suggesting we shouldn’t think of it as taking a lump sum payment.
According to Colonial First State’s Income Stream Index, launched in April 2015, many Australians are actually already doing this.
The analysis found that 83.3per cent of retirement assets were taken as income streams for the 2014 financial year, suggesting that Australians’ reliance on lump sums is an exaggeration. Additionally, the Index is projected to rise to 96% by 2025.
These findings contradict widely quoted, but flawed, data from APRA that shows only half of retirement benefits are taken as income streams.
Changing the conversation
Developed in conjunction with Rice Warner, a leading provider of research and advice to the superannuation and wealth management industries, the Index shows a strong preference for income streams over lump sums, particularly as balances grow larger. Derived from an analysis of over 10 million members and $55 billion in assets, the findings reiterate those from the FSI report. Of those who do opt for lump sums, Australian Bureau of Statistics data (2013) suggests they tend to use them productively: one quarter invests in their own home, 18% reinvest as ordinary money and 13% reinvest into another retirement scheme.
“The question is not so much about whether Australians use income stream products in retirement but whether they are using the right income streams,” says Nicolette Rubinsztein, General Manager Retirement at Colonial First State.
Diversification is king
Just like an investment portfolio, the idea that you shouldn’t put all your eggs in one basket applies to super. The FSI report states that “superannuation assets are not being efficiently converted into retirement incomes due to a lack of risk pooling and over-reliance on individual account based pensions.” This suggests a combination of products may be the best option for a healthy retirement income.
What is the optimal retirement solution?
That’s the million-dollar question, and the main message for consumers is to seek financial advice. As an adviser it’s your responsibility to understand all the different elements to a good retirement solution – including the bigger issue of Australians potentially out-living their super balance.
According to a 2014 Mercer report, over 85 per cent of white collar workers are expected to live beyond 88, with 35 per cent of men reaching 91 and 93 for women, which could result in many people being forced to rely solely on the age pension.
To reduce reliance on the age pension the FSI report recommends introducing a Comprehensive Income Product for Retirement (CIPR) that is tailored to the individual client’s needs and risk tolerance, and that can handle fluctuations in the economic climate. This may not necessarily be a single product solution. An account based pension, paired with a product that provides longevity risk protection, could provide a regular and stable income that is flexible yet offers a certain amount of risk protection.
So a good CIPR option could potentially combine an allocated pension and a term or life annuity. In fact, the FSI report suggests that the income from such a strategy would be 15 to 30% higher simply drawing the minimum amount from a single account based pension. Given post-retirement needs are quite different to the accumulation phase, and need to balance income, longevity and inheritance, it’s essential for advisers to provide bespoke financial advice.
Read the full Index for further insights here.
Adviser use only. This is general information for the adviser only and is not intended for any investor. It is not financial product advice and does not take into account the individual objectives, financial situation or needs of any individual investor. Investors should read the Product Disclosure Statement (PDS) available at colonialfirststate.com.au and consider talking to a financial adviser before making an investment decision. Colonial First State Investments Limited (Colonial First State) ABN 98 002 348 352 AFSL 232468 is a subsidiary of Commonwealth Bank of Australia ABN 48 123 123 124 ('the Bank'). The Bank and its subsidiaries do not guarantee the performance of Colonial First State's products or the repayment of capital by Colonial First State.
Data source: Colonial First State Income Stream Index prepared by Rice Warner, April 2015.
Promoted by 
We all know that 2/3 of financial advisers include direct shares in their advice. That’s why the industry is facing a mighty challenge, as many key stocks are trading at record high prices, fuelled by yield hunters chasing income for retiree clients. Interest rates are at all time lows and heading even lower – so it’s little wonder that we are seeing a wave of new ASX listed products (including mFunds) specifically aiming for an income focus and with reduced levels of equity risk.
Read more: Equity income still the biggest challenge for advisers
Get the latest news! Subscribe to the ifa bulletin
