Role of advice missing from savings debate
The role of advice in the current retirement savings debate has been overlooked, claims the Institute of Financial Advisers (IFA).
Wednesday, June 20th 2012, 6:00AM 
2 Comments
The Financial Services Council (FSC) has recommended New Zealanders lift their savings to 10% of their income, a move IFA president Nigel Tate said they supported.
“But we think it misses one important factor - getting good advice,” he said.
“Savings on its own isn’t enough. The real risk is that savers don’t invest their money wisely - or draw down at the right level in retirement. That’s where many will really benefit from good advice.”
Tate said evidence going back over decades points to the fact that the most important factor in retirement savings is where people put their money.
“The right mix of cash, shares and so on is vital. Too conservative, and inflation will nibble away. Too assertive, and it might be too volatile for some.”
Tate said few savers have the knowledge to make the right investment decisions and that was why the role of a qualified adviser was so important.
“Also, how’s the average person going to know how much to save? Whether or not to retire earlier, or later? As the report says, people will be living a lot longer - will their money last? If they don’t end up making the right choices, they could wind up living on little more than the state pension.”
He also said retirement saving is just part of the picture and that insurance - and insurance advice - has a role to play too.
“But insurance, even more than savings, is not a one-size-fits-all,” he said.
“Everyone is different, and every product is different. Having insurance in KiwiSaver Plus wouldn’t necessarily meet someone’s needs during their entire life. There could be some potentially big risks that simply aren’t covered at all, or to the right level.”
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Comments from our readers
I agree that few investors would have sufficient knowledge to make the right decisions, however, no-one can be expected to make no mistakes (i.e. always the right decisions.
This matter needs to be kept in true perspective, and it must be asked "how really well versed are 'advisers' that they can claim to really add the necessary value to a clients portfolio to justify the fees?"
eg; a decade or so ago, the projected returns for a custom balanced portfolio were supposed to be in the range of 5% to 7%pa, with a time horizon of 6 to 8 years being applied to a mid to long term.
Today the same portfolio is subject to tighter regulations and projects 5% to 7%pa with the time horizon "pole" being pushed out to more like 10 to 14 years for long term!
In an informal chat with a selection of financial advisers around the country over a few years I recorded several who said they took a rather conservative approach and were targeting around 3% to 5%pa for a longer term approach.
A high percentage of those advisers did not even know (understand) that "inflation" only existed as a 'word' and subsequently built clients portfolios based on what they had been conditioned to think that assets such as property and shares actually "inflated" in value?
The result has proven to be a general disaster for the adviser/client relationship, and now the "great fix" solution is supposed to be forced on the profession in the form of regulation and extra qualifications as all are forced to go back to school on the topic.
I am fully supportive of advice to investors, however, I remain skeptical that the "education" being given to the advisers is just not correct nor adequate enough to be truly effective, and the result I suggest is that history shall repeat?
I challenge for one thing, how many advisers out there still believe that "inflation" exists as a reality, and not just a word?
To help, should "inflation" not be replaced more accurately as "money devaluation?"
That is just one example of where I see serious shortfalls in understanding facts, and all of this is seemingly set to be destined to being "clouded over" by this new thrust on regulation.
As if we did not have regulation before....e.g. every Finance Company had a prospectus (with associated trustees who were supposed to provide the required "trust" for investors) and that was the ultimate "regulation!"
So, if your adviser provided a portfolio which returned you 5%pa and took a 1% fee that left you with 4% return, but that damned "inflation" ruined the whole thing?
Michael Donovan
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