Archive for category: Lonsec Retirement Perspectives

Building a goals-based investment portfolio

For many, approaching retirement is often characterised by heightened emotion and anxiety associated with competing life goals and financial objectives. Each of these will typically have different time horizons and be prioritised in different ways. Most retirement portfolio construction approaches rely solely on risk profiling as the primary mechanism to determine the ‘optimal’ retirement portfolio. While useful, such tools are unlikely to capture all that is important to retirees who typically have multiple investment objectives. Additionally, many investment decisions are product driven, rather than strategy driven. Lonsec believes the focus should be on investment strategy, with product selection simply being a vehicle to execute a strategy, rather than the driver of the strategy.

Lonsec believes that an objectives-based approach can enhance and complement existing approaches to retirement portfolio construction in the following areas:

  • Expectations management: better communicate and manage client investment expectations, including the level of risk required to achieve those objectives
  • Alignment of strategy & objectives: Strategies are specifically tailored to individual client objectives, recognising that each client will have different retirement objectives and prioritise those objectives differently
  • Alignment of product to strategy: product selection is a result of the investment strategy; it does not drive the strategy. Lonsec believes that this is particularly relevant given ASIC’s focus on product selection driven by clients’ ‘best interests’
  • Engagement: improves financial adviser-client engagement by focusing discussion on investment strategy and how it relates to client investment objectives, rather than focusing on returns, markets and products.

This paper provides a practical framework to assist financial advisers in constructing an objectives-based retirement portfolio. It is designed to follow the key steps of the advice process and is broken into the following sections:

This paper can be used to assist financial advisers in constructing objectives-based portfolios for retiree clients, or as support material to the Lonsec Lifestyle Retirement Portfolios.

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Lonsec’s Retire program to focus on helping advisers withstand the coming retirement storm

With Australia’s economic expansion under threat, house prices falling, and a wave of people set to retire over the next decade, financial advisers are under pressure to provide advice and solutions that can withstand Australia’s future retirement challenges.

Lonsec’s Retire program addresses the growing need for the financial services industry to work together to come up with those solutions and strategies.

Lonsec has been running its successful Retire program for more than five years, and it continues to go from strength to strength. The schedule of content and events planned for the next 12 months is the largest yet, with nine Retire Partners now on board to deliver in-depth retirement insights, including:                          

Alliance Bernstein Fidelity      Legg Mason
Allianz Retire+  Invesco  Pendal
Challenger Investors Mutual  Talaria

Lonsec’s Retire Partners will be providing a wealth of content to help advisers understand and deal with a range of issues faced by advisers and their clients.

The program will really kick off on May 7th with the major Lonsec Symposium event at the Westin, Sydney. With more than 600 advisers and wealth managers already registered, along with an impressive line-up of high-profile speakers and industry leaders, this is a must-attend event for all retirement professionals.

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Craving Certainty – The Retirement Mirage

“How much can I spend?” This question lies at the heart of so many conversations between a retiree and their adviser. Although not explicitly stated, this simple question ties in to so many other related concerns – Can I spend enough to be comfortable? Will I run out of money? What are my options if my health deteriorates? What about bequests?

All these questions boil down to one thing – a craving for certainty. While this is understandable from the client perspective, the key challenge for the financial advice industry is how much certainty can we provide in answering these questions, and how do we manage client expectations.This thought piece looks at the factors driving this desire for certainty, and different solutions to the expectations gap between what clients want and what advice can provide.

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The role of annuities in retirement portfolios

In recognition of the growing challenges facing retirees, Lonsec has published a paper on the role annuities can play in retirement portfolios. The paper explores some of the common issues facing retirees such as sequencing risk, longevity risk and market risk.

The main benefits and risks of annuities are considered as well as how annuities can mitigate these risks. The paper examines how annuities can work with the age pension and other investment products to help retirees meet essential spending objectives as well as provide for discretionary spending.

Lonsec believes that annuities are an attractive proposition for retirees looking to secure part of their retirement income stream, including in conjunction with the age pension, to boost the amount of guaranteed income during retirement. Additionally, Lonsec notes that there is a mass market of retirees for whom annuities may be appropriate, typically those with retirement savings of between $250,000 to $1,500,000.

Lonsec does not have a preferred means to best make an allocation to annuities within a diversified investment portfolio but notes there are two commonly held schools of thought. The first is to allocate from the defensive assets within a portfolio and the second is to ‘carve-out’ a separate allocation for the annuity and retain the existing asset class weightings over a smaller asset base.

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Phone: 1300 826 395 | Email: info@lonsec.com.au

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