FASEA Financial Adviser Education Requirements
How to fulfil the new FASEA requirements, integrate learning into your advice practice and enhance outcomes for your business and clients.
Written by Milliman
Financial adviser Jack Hobbs has seen more than a few market downturns during his 40-plus years in the industry.
“Assets will go down in value at some stage, just like the sun gets up every morning and the sun goes down every afternoon,” Hobbs says. “The only one that won't go down is cash in the bank, but in the current environment, the return on that is very low.”
Current cash returns of less than 2% a year aren’t enough to sustain a portfolio for most Australians who are facing 20-plus years in retirement. And yet many also can’t face the risk posed by higher-growth assets such as equities that are required to generate the long-term returns they need.
It’s a core reason why Hobbs takes a different approach with his clients, investing in share funds that apply Milliman’s portfolio protection.
“You can have a no-loss situation by investing in cash, which generates low returns, or you can have potential for substantial upside growth with cushioned downside protection. When I explain it to clients they say ‘Yeah, we like that strategy’.
The Milliman strategy applies a hedge to investments, such as the Milliman Managed Risk Australian Share Fund, using exchange-traded instruments (futures). The rules-based protection is applied in direct response to market conditions: during periods of volatility protection rises, and then falls when markets are strong - meaning investors benefit from the extra exposure to growth.
However, investment returns have been generally strong for an extended period, with the global financial crisis now a distant memory for many Australians.
“People need to be aware it can happen again, and it will happen again – we just don't know when,” Hobbs says. “It's like insuring your house. People insure their house, but how many houses burn down? Not a lot. But it's still worth having insurance because you don't want to be put in a risk position where you can lose everything.”
An economic crisis has struck on average every six years since World War II, according to research by the World Competitiveness Centre. And in recent months, markets have become more volatile as concerns rise about the impact of a potential US-China trade war and rising US interest rates on global growth.
Many of Hobbs’ clients, who are self-employed in the regional hub of Toowoomba, understand how important it is to manage risk because they manage it in their own businesses. They also understand that the small cost involved in managing risk pays for itself over the long-term.
“I say to people you can't have maximum performance and maximum safety. It's a bit like, if you want to drive down the street at 200 kilometres an hour, you're going to get there quicker, but you're going to have risk on the way through. If you drive at 100 kilometres an hour, you'll have less risk, but it takes a bit longer to get there.”
That smoother ride also means pre and post retirement investors who want to take on more risk can potentially move into a higher risk profile with comfort thanks to the downside protection.
The result is a smoother ride for portfolios which are powered by consistent, compounding returns, enabling investors to reach their retirement goals with greater peace of mind.
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