Superannuation and pension accounts form a significant portion of financial advisory firms’ business. The vast majority of retirees have common core needs and concerns:
- To adapt to living from income from investments with a managed consumption of capital
- Confidence that they can live their preferred lifestyle
- The flexibility to deal with unexpected events during retirement, such as poor health
- The potential to bequeath assets to beneficiaries
There are also several strategic factors that advisers must address, including sequencing risk and, as lifespans increase and people’s health improves - longevity risk.
Now, advice firms can benefit from a ready-made turn-key solution provided by Dynamic Asset. This end-to-end portfolio implementation and management service offer five actively managed portfolios, each focused on a particular risk-return outcome. The portfolios can be blended in any combination to refine risk-return targets at any point in time. This is often referred to as the ‘bucket’ approach. Advisers can directly link their client’s goals to specific professionally managed investment portfolios, which also helps clients understand the rationale of each investment portfolio and promotes client engagement.
Dynamic Asset resolves sequencing risk via a range of time-based portfolios that allow advisers to match investments to cash flow needs using a unique online Portfolio Construction Tool. For example, a client can manage risk or target a particular return by splitting their funds across cash or cash-like investments with a six to 12-month timeframe, short- and mid-term investments of one to two years and the remainder in long-term investments. This bucket approach provides the client with up to five years of low-risk less-volatile investments that they can use to meet cash flow needs without calling on longer-term investments during times of market stress. That is, they do not have to sell market-linked assets during a downturn.
Longevity risk is addressed in much the same way; by selecting the portfolios that target the rate of return required to ensure a client’s capital last for a specific period.
The other benefits of this investment approach are capital protection and lower volatility. Each portfolio is constructed using dynamic asset allocation, and while the investments may underperform in strong markets, the strategy protects retirees from heavy losses during market downturns. This lower-risk approach offers advisers a second layer of strategic advantage and helps their retiree clients’ capital last longer.
Dynamic Asset’s investment approach differs from the standard strategic asset allocation method, a primarily passive strategy based on backward-looking benchmark returns that require investors to ride out the market’s ups and downs. While this can work fabulously in a bull market, it fails during significant market falls. In the end, there is little guarantee that the investment will even meet its target returns since markets are often inefficient, and investment outcomes depend on what part of the market cycle a client enters and exits their investment.
Dynamic Asset’s portfolios, tools and Portfolio Management services allow advisers to spend less time comforting nervous investors that want to abandon their investment strategy during falling markets. Instead, they can concentrate on building trust and ensuring that each client’s portfolio selection remains suitable for their investment goal while resolving strategic concerns, such as longevity and sequencing risk.
Find out more about our Adviser investment approach.
