When a client reaches the “decumulation” phase of their superannuation – when they begin drawing money – advisers need to discuss with them how long that money is going to last, what the cash-flow is that will pay the benefits to members, and to look at the liquidity and associated risks.
Recent research from the SPAA and Russell Investments shows that only 43.9% of retired trustees had changed or were planning to change their asset allocation in retirement and that there was a need for this discussion between advisers and SMSF clients.
Independent adviser Matthew Ross said that asset allocation shouldn’t change as soon as someone hits retirement, but that it should be a gradual process, possibly over the space of five years.
“It’s not like you say ‘I’m going to retire today, we better not take risks anymore’. The day before you retire, you shouldn’t be taking risk either… That change from more aggressive assets to defensive assets is something that should happen over time, as you lead up towards [retirement].”
SPAA education and professional standards director Graeme Colley said the conversation needed to lead with strategy rather than products; looking at how you can meet the client’s goals, instead of looking at investments that will just build wealth. He said the time period of asset allocation change would depend on the age profile, health, and risk appetite of the client. Most SMSF investors are in direct investments and really rely on that advice, said Colley.
Russell Investments CEO Asia Pacific Alan Schoenheimer said “the investment objectives are considerably different as SMSFs move between accumulation and decumulation, and it follows that the asset allocation should also adapt to this change is focus. Trustees nearing retirement clearly need to shift their attention toward asset allocation decisions.”
He said the decision was not as simplistic as fully migrating a portfolio from growth to defensive assets, and that it reinforced the need for specialist advice to ensure suitably-equipped portfolios. SPAA CEO Andrea Slattery noted that SMSF trustees were adopting a more proactive approach than APRA regulated fund members, with less than one third of these saying they had changed or were planning to change their asset allocation.