Low rates could create opportunity

Low interest rates through 2015 may be good news for advisers.

Friday, January 23rd 2015, 6:00AM

by Susan Edmunds

CPI data this week confirmed annual inflation is running below the Reserve Bank’s target band of 1% to 3%.

That has led bank economists to predict that the OCR will be kept on hold this year, even if house price inflation pressure increases.

ASB head of wealth advisory Jonathan Beale said continued low interest rates could pay off for the advice sector.

He said when interest rates were low investors were more motivated to seek alternatives to fixed interest products such as term deposits.

“Especially people who want a set amount of money and rely on that income stream. That’s made it easier for advisers, they’ve had people saying they need their money to work harder,” he said.

Adviser Simon Hassan said the investment environment would be benign for the coming year.

Growth investments, NZ shares in particular, would likely perform well again.

Clients who wanted income could suffer a bit, he said, but those same clients would usually have growth investments in their portfolios, too. “They’ll increase in value so if you need to, you can cash them in to top up the missing income. It’s not a bad set of circumstances for most investment clients,” he said.

Low rates would also fuel the housing market which would help investments such as listed property, he said.

But adviser Brent Sheather warned it was not the time to be complacent about the performance of equities this year.

He said the market was likely to not perform as well this year as in years past. “After being so good for the last few years it’s going to be a lot more mediocre. It’s going to be so much more difficult to beat the bank. In a couple of quarters the high historic returns will drop out of performance and people night say where is the value add-here, why am I paying these high fees?”

He said advisers who encountered dropping returns could talk to their clients about re-evaluating their risk profiles, or could charge them lower fees.

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