Russell Investments has called for a new approach to post retirement investment, advocating a “mass customization” model which can be provided through super funds to create tailored strategies for the large number of people who cannot afford financial planning.

Russell this week released the second paper in its Retirement Solutions research series which outlines the Russell Adaptive Investing (RAI) methodology, a process which formulaically determines an appropriate risk of defensive and risk assets, customized for individuals “but in a wholesale manner.” The firm describes the approach as a “second generation lifecycle approach.”

“Investors and superannuants are very cranky,” says Chris Corneil, Russell’s chief executive officer for Australasia.

“They’ve gone through a period where for many years life was good, but over the last five year period they have gone through the worst rolling five year period since the introduction of the superannuation guarantee.

“And what we have seen is that members have been striving to achieve outcomes, while the industry has been pedaling benchmarked solutions, so there’s been a mismatch.”

The demographics of superannuation mean that currently there are three types of retirees: high net worth individuals who won’t need all the money they have saved for retirement, people with small lump sums who are likely to move rapidly to the government pension, and a third – and growing – group of retirees who have a significant lump sum, but one which will require rigorous management if it is to last them through retirement.

“We see that 60 per cent of a members’ income in retirement will be generated through post retirement investments,” says Corneil.

“So what we are saying is that managing that period after the accumulation phase is critical, and that is where we have to get back to understanding that members want outcomes and not benchmarks.

“We believe that means you have to fundamentally redesign the investment process, and that means you should customize it down to the individual level, even if that individual does not have access to a financial planner.”

Russell’s director of superannuation, Tim Furlan, says Australia is on a “20 to 40 year journey” with superannuation, as people who grew up with Superannuation Guarantee begin to retire.

He says the Russell methodology has been designed to sit between a member’s superannuation fund and its administration system, where information can be accessed “to understand the right solutions for members” in a way which is scalable for the funds.

“We run different asset allocation models for different circumstances,” says Furlan.

“A person who barely has enough for their retirement is going to need a lot more protection on the downside, and we need to understand that in designing their retirement investment plan.”

 

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