A senior executive from a research house has called on the Australian Securities and Investments Commission (ASIC) to do a better job of ensuring any risk associated with products publicising higher-than-average returns targeting retirees are properly disclosed.
“My problem with ASIC is that it has never really stopped the simple problem [being] old people go to the Sunday newspaper and old people read large-form ads for companies offering impossibilities at zero risk,” Investment Trends chief executive Michael Blomfield said during a thought leadership panel discussion at the recent SMSF Association 2020 National Conference held on the Gold Coast.
“I don’t understand why somebody isn’t on staff, getting the Sunday newspaper and issuing fines every week [for these types of promotions]. Just knock it out.
“I’m sick of having the conversation: ‘Dad, seriously mate you reckon you can get 10 per cent return with zero risk? As a former lawyer are you going to buy this?’”
Blomfield noted the current economic environment is exacerbating this scenario as retirees look to replace the returns they once got from cash or cash-equivalent offerings.
“If we are going to a lower negative [interest] rate environment, older people in particular are going to be forced on risk because the returns on cash simply can’t support any form of lifestyle,” he pointed out.
“Then there is this huge moral hazard that starts to arise pushing people out of zero-risk product into risk product at the wrong time in their lives in the middle of the market cataclysm.”
Fellow panellist Challenger retirement income chairman Jeremy Cooper suggested a change in attitudes toward drawing down capital might provide a solution.
“We’re quite clearly going into an environment where investment returns as we know them are going to be severely challenged, so it’s a matter of a mindset change around spending the money,” Cooper said.
“I hear all these debates at the moment about so-called retirement traps and so on. It’s all framed on a world where you don’t spend your capital.
“So when the government takes 7.8 per cent away from you, don’t scream that you can’t make an investment return to beat that. If you’re a little bit older, you can even get an annuity that can pay you that, but you make up the difference by cleverly and safely spending your capital.
“Until we engage with that, I think we’re going to be in a world of hurt.”