Ensuring that your advice business model is genuinely client-centric will become even more critical from 5 October 2021, when new Design and Distribution Obligations (DDO) comes into effect. This follows findings that complex product design and poor distribution practices have led to bad outcomes for consumers. Simply providing information does not always help clients make good financial decisions.
A successful retirement strategy's main objective is to ensure that a client's cash flow requirements are met and that they do not run out of money too soon.
Retirement income strategies used to be relatively straightforward. The financial adviser's traditional approach would be to transition retirees to a more defensive income-producing asset allocation to preserve capital over the long term. However, today's market dynamics mean such a strategy is unlikely to protect retirees from longevity risk or generate sufficient returns to fund their lifestyle needs. The changing environment has compelled financial advisors to rethink how they plan to deliver a secure retirement for their clients.
In today's increasingly complex world, consumers need quality financial advice more than ever. Yet many advice firms are struggling; overburdened by regulatory and compliance obligations that are making it difficult to scale their business and keep fees affordable, resulting in more work for not necessarily any more profit. Too often, these are the advisors that are failing to capture the opportunity to modernise their business in response to changing industry requirements and customer needs.
Dynamic Asset Portfolio Manager, Jerome Lander, discusses the risks of strategic asset allocation - particularly during the very difficult market conditions we face today. He argues that unless you're prepared to change the way you manage your client's money, there's really no way to manage that risk.
Equity markets have bounced well over 20% since the lows just over a month ago, so technically we are already in a new bull market.
With peak new cases now behind us, the economy agitating to reopen and governments starting to ease restrictions, is the massive fiscal and monetary stimulus in the pipes about to prove the bulls spectacularly right?
In short, advisers are more likely to succeed in meeting their client’s financial needs by adopting a Goals Based Investment (GBI) approach that encompasses dynamic asset allocation, than by following the traditional risk-based strategic asset allocation methodology that has been common practice over the previous few decades.
The premise of Goals Based Investing is to focus each investment portfolio on specific individual personal and lifestyle goals. Those goals inform the right timeframe, risk and return parameters, which in turn determine the best asset allocation and investment mix. Goals can be short-term, such as taking a holiday, medium-term, such as renovating or paying school fees, and long-term, such as saving for retirement.
When we think of investment advice, the first question almost always asked is “what’s the client’s risk profile”? Like Pavlov’s Dog, it’s almost a conditioned reflex to the way the industry has operated over so many years. Of course, it’s important to understand what type of investments the client would be ‘comfortable’ with, but does it really help them achieve their goals and is it really in their best interests to invest according to a risk profile questionnaire?
New consumer-centric financial product and distribution obligations from April 2021 offer astute financial advisers an opportunity to not only meet the requirements, but to gain an edge in achieving superior client outcomes and improve their business practices.
