The annual Principal Global Investors CREATE Report, released today, shows that risk is being transferred from “those who were unable to manage it, to those who are ill-equipped to manage it”.
The report surveyed 713 asset managers, pension plans, pension consultants, fund distributors and fund administrators from 29 countries.
Grant Forster, CEO of Principal Global Investors (Australia) said a key finding was that the responsibility of risk was moving away from the employer and the Government, and onto the investor, who needs to make sure they have a portfolio in place to provide that income.
He says there is a lot of work to do around income through retirement, and planners have to be more open to utilising life-cycle and multi-asset products.
“Some planners have found it difficult to divorce themselves from the concept that unless they’re providing true asset allocation, then they’re not earning their way. I really think that’s not right. A planner is there to help with discipline, to help with coordinating a financial plan, ensuring that you have all the factors in place in a financial plan – estate planning, income planning, making sure you’re regularly investing…personally I don’t think a client expects a financial planner to be making asset allocation decisions all the time.”
The closure of Defined Benefit (DB) plans and shift towards Defined Contribution (DC) plans is expected to accelerate in all pension markets, and Forster said that real assets would become increasingly attractive.
As well as placing the onus of risk onto the individual, the shift will also unleash powerful tailwinds for LDI and life-cycle products.
Forster says that planners can expect an increase in demand from investors wanting to learn about fixed income investing. But the fixed income asset of sovereign debt is no longer going to be the go-to asset class because sovereign debt is no longer risk-free.