Market downturn to trigger product innovation

The second market downturn in three years may prompt super fund and platform sectors to finally start developing more protected growth linked retirement income solutions, according to Path Independent managing director Geoff Watkins.

Watkins said many super funds and platforms have already been considering implementing some form of capital protection on growth linked retirement income products over the past six to twelve months, but that investors were not as interested.

"After running numbers on the merits of various techniques, we see that some can be really worthwhile for investors who need growth over the long-term to meet their long retirement needs, but cannot psychologically, or for short-term needs, handle outright shares or equity funds," Watkins said. 

"The problem is that there are so many different possible ways to do it that it can become confusing for investors and advisers - and there are plenty of situations where people should not use them at all", he said.

 Another factor holding back product development is the significant cost of developing the required software and risk management processes, Watkins added.

However, the renewed shock to investors from falling account balances is likely to further increase their scepticism about the share market, reducing the already anaemic flows into the equity asset class since the global financial crisis.

"That prospect of lower earnings for fund managers may well provide the business case for spending the money to roll out safer ways to invest in equity," Watkins said.