Lower returns for longer; Advisers will have to work harder

Financial advisers have been told to expect single-digit returns on investments “for the foreseeable future.”

Tuesday, June 21st 2022, 6:00AM

by Eric Frykberg

Big returns gone and advisers need to look sharp – conference advice

They were also told they will have to work harder for their money.

These views came from Clayton Coplestone, director of Heathcote Investment Partners. He was speaking to delegates at a conference organised by the Financial Services Council (FSC) in Queenstown.

Coplestone told delegates the double-digit returns of the past few years have disappeared for many reasons, and a return of 8% on investments would be a good one.

Coplestone said this development stemmed from a change in the investment world that happened very fast.

“March of this year, when markets corrected, represented a tectonic shift away from Blue Sky, ambitious, power-point investments, to fundamental, provable outputs,” he said.

People would want much more certainty, and the days of double-digit returns were over.

His estimate of 8% used a risk-free rate of return of 3% as a starting point. That was based on the long term average return on a term-deposit in a bank. He then added 5%, also based on long term averages for risk based returns.

Coplestone said for the adviser industry, these changes would make people become very picky, and ask many questions about the fees they were incurring and the value they could expect from their investment decisions.

“Complacency or mediocrity (in the adviser industry) is going to get punished,” Coplestone said.

“There is a huge role for financial guidance but it has to be realistic and it has to have a value that advisers can add and customers cannot get on their own.”

Copperstone said there were many reasons for the dramatic change in the investment scene and its consequent fall in returns. Inflation was back, so was international tension, and interest rates were rising.

But demographics also played a role, with the large population bulge of baby boomers getting older, and moving in large numbers from expansion to conservatism.

He said they were less interested in Blue Sky investments and more interested in safeguarding what they have already got.

“They are sitting there, thinking, this is my nest egg, this is all I have got, and I want to make it outlive me.”

Coplestone argued these people would tend to turn down adventurous investment in favour of solidity and there were enough of them to make a big difference.

Tags: Clayton Copplestone