Thursday, February 11th, 2010 - J.P. Morgan
Lack of options force too many retirement investors into unsuitable investments

Sydney 11 February 2010: The difficulties faced by members of default superannuation funds when they’re placed into asset allocations unsuitable for their life stage, risk tolerance and other personal circumstances have been highlighted both by recent market performance and the scrutiny of the Cooper Review.

Such investors – who make up around 70 per cent of all fund members – too often find themselves earning way too little or they risk way too much, depending on the allocation of the assets within their superannuation fund.

This was vividly illustrated during the recent dramatic market downturn. As a result of that event, many older fund members were forced to review their retirement plans when significant exposure to higher risk, higher growth assets such as shares led to plummeting super balances.

“Many investors close to retirement found themselves in ‘one size fits all’ default asset allocations comprising around 70 per cent growth assets. This meant that they were hit hard by the downturn when they could least endure it,” said David Jones-Prichard, Executive Director, Equity Derivatives and Structured Products at J.P. Morgan. “Of course, it’s a different matter for younger members, who over the longer term generally benefit from pursuing more aggressive growth.”

However, said Mr Jones-Prichard, the conventional solution – moving older investors into lower risk asset allocations – also has its drawbacks, specifically, low returns.

“Typically, investors approaching retirement are advised to de-risk their asset allocation and in so doing sacrifice growth for security,” he said. “When you consider that for many it’s their last major opportunity to build the size of their portfolio you can see they have a paucity of choice – it’s either unacceptable risk or very low returns.”

That’s why Mr Jones-Prichard believes it’s time for the market to look at alternative styles of investment that are more closely tailored to the needs of those closing in on retirement: offering strong growth while at the same time limiting risk.

“With the current Cooper Review receiving a constant stream of submissions, it’s a prime opportunity for fund managers to cast the net a bit wider and look for opportunities to redress the situation for investors. Our retirement savings system, for all its complexity and frustrations, remains the envy of the world and I can see why in its early stages the ‘one size fits all’ approach was the natural way to go.

“But we’re a far more sophisticated market today with far more options and a greater awareness of how the system works. The fact is, there are forms of investment now available that have high growth potential while placing a floor on losses. It’s now up to the fund managers to be receptive to calls for more flexible products and take a good look at what’s available.”

Mr Jones-Prichard went on to highlight that submissions to the Cooper Review repeatedly call for an embedded advice model that offers products that meet the needs of retirement savers at every stage.

“The target date plans that are favoured in the US and UK have come under attention during the course of the Review and it’s time we considered incorporating some of those elements into our Australian retirement investment options. We need a whole-of-life approach, not a ‘one size fits all’ solution and the fact is that the products to give investors what they need are out there.”


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J.P. Morgan

JPMorgan Chase & Co. (NYSE: JPM) is a leading global financial services firm with assets of US2.2 trillion and operations in more than 60 countries. The firm is a leader in investment banking, financial services for consumers, small business and commercial banking, financial transaction processing, asset management, and private equity. A component of the Dow Jones Industrial Average, JPMorgan Chase serves millions of consumers in the United States and many of the world’s most prominent corporate, institutional and government clients under its J.P. Morgan, Chase and WaMu brands. Information about the firm is available at and
David Jones-Prichard, Executive Director, Equity Derivatives & Structured Products
P: 02 9220 1633

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