Japan Investment Conference 2019: The Multi-Stage Life and The Challenges Facing Financial Services

This is an event that I attended a couple of weeks ago and the agenda can be found here:

Click to access JIC2019_agenda_EN.pdf

This was a special event as it was also an opportunity to commemorate CFA Japan’s 20 year anniversary. The topic which was chosen was also interestingly titled “The Multi-Stage Life and The Challenges Facing Financial Services”; this deviated from past topics that the society had chosen and there were a lot of people expressing their opinions that this was more aimed at individuals and wealth advisors rather than your traditional institutional investors. Nevertheless I thought the event was a success.

Out of the speakers, Dr. Andrew Scott from the London Business School was one of the main speakers and his presentation was based on his book “The 100-Year Life – Living and Working in an Age of Longevity”. Other presentations followed this theme regarding our longer life expectancies across countries and the need to prepare for a multi-stage retirement phase.

The ongoing debate regarding this trend up until now has been to consider working and retirement as a two stage process. You pretty much work all your life, put money on the side in terms of savings, state pensions and or private pensions. You reach 60 or 65 or whatever the retirement age is in your country and you tap into your pension pot and your assets during your retirement. Assuming a life expectancy of 85-90 that’s 20-25 years that your retirement pot needs to last. If you are looking at 30 years +, it simply isn’t feasible to to have such a large retirement pot. Governments need to get to grips with this reality. Financial service providers will undoubtably capitalise on this and more importantly, as individuals we need to be aware of this and plan accordingly.

Wealth as a Portfolio of Intangible Assets

This was a very important point that was brought up and changed the way I perceive the accumulation of wealth towards retirement. Up until now, I was only looking at retirement in terms of the cash inflows that you could get from your retirement pot (regardless of whether this is in the form of annuities or income from your portfolio). This could not be further from the truth; firstly, our health is a key asset that needs to be treasured, especially in retirement. A healthier life will also result in a reduction of medical bills. Another point worth noting is the earning ability which shouldn’t automatically go to 0 as we retire. As individuals are likely to lead a multi-stage retirement phase, we might see people in their 60s transitioning in other type of roles. For companies, it’s important to treasure this generation who will be abundant in the workforce. As individuals we need to keep aware of our earning abilities and ensure that our skillsets are still required in the current labour markets.

My Thoughts

Financial Institutions will inevitably need to perform a paradigm shift as we see this demographic change. From an asset allocation perspective, I am interested in seeing how individual portfolios will change to have slightly more aggressive allocations to meet long-term return requirements whilst addressing possible liquidity needs especially in retirement years. This is an area that I am very keen on and that I will be researching in the upcoming months. The solution might be that the level of risk might not be optimal for the individual. In such cases, we should look at longer working years to boost portfolio contributions. Overall I think the start is educating people and spreading awareness of this trend; we all need to be conscious that this is a change that we will see in our generation.

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