Advice crucial for market and demographic conditions

The financial services industry still lacked potential product solutions to cater to the large cohort of self-managed superannuation funds (SMSFs) transitioning into the retirement drawdown phase from the accumulation phase, according to the global chief executive of Vanguard Investments.

Bill McNabb told the 2017 SMSF Association conference in Melbourne on Thursday that "no one has come up with a holy grail product on this side".

"Everyone talks about potential product solutions. I don't think that's where the answer will be. I think the answer actually is advice. I think it's more sophisticated advice around drawdown strategies," McNabb said.

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His comments were in response to issues raised by SMSF Association chairman, Andrew Gale in the same discussion in a question and answer format, where he asked McNabb about the challenges the financial services sector faced in tackling sequencing risk and longevity risk in the drawdown phase versus the accumulation phase.

"The services that advisers can provide broadly really can come to the fore because you can make a huge difference in somebody's standard of living just by intelligent drawdown," McNabb said.

The role of financial advisers has also never been more crucial as it is now amidst market volatility, uncertainty, and asset classes performing below their 30 year averages, according to the global chief executive of Vanguard Investments.

McNabb told the conference that investors were entering a period where they should expect more uncertainty for prolonged periods of time without expecting to get compensated for losses.

"We run a very comprehensive capital markets model that looks at different asset classes out over 10 years. And with probabilities of future returns.

"Our models today have global equities in the developed world returning a couple of hundred basis points below the 30 year averages. Fixed interest we know is going to return less over the next 10 years than it has over the last 10 years," McNabb said.

Advisers would have to exercise heightened levels of due diligence to assist clients in navigating through the storm of market volatility and uncertainty as clients would rely on them during these times.

Bonds in the US averaged 13 per cent in the 1980s while stocks averaged 17 per cent for almost 20 years, and investors enjoyed their money doubling every five years but this would no longer be the case.

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