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09 July 2025 by Maja Garaca Djurdjevic

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FPA model plan raises questions

  •  
By Christine St Anne
  •  
4 minute read

The association's current SOA model includes too much weighting to risky assets, an academic says.

The FPA's statement of advice (SOA) model raises questions regarding investment advice, according to an Australian academic.

In June 2008, the FPA released an example SOA for its members outlining a a tax-effective investment strategy for a middle class baby boomer couple.

The association had also liaised with ASIC in revising the example SOA, with the plan recommending a fixed 70 per cent allocation of the couple's financial assets into growth assets.

"This investment advice is controversial for people who are nearing retirement," Macquarie University professor of economics Geoffrey Kingston told an audience at the 17th Colloquium of Superannuation Researchers forum in Sydney yesterday.

 
 

"My main objection to the model plan concerns the fact it recommends such a high proportion to growth assets, which are really risky assets.

"This investment advice does not take into consideration the risk return proposition in investment portfolios. The model plan view is that risk management is about trading off prospective high returns against prospective low volatility of returns."

Financial plans should be using risk management to protect a portion of assets, according to Kingston.

Products such as out-of-the-money put options can be used to protect a sum that is used to fund a person's lifestyle, with the remaining amount used to invest in risky assets, he said.

"The FPA's next model plan should be supplemented by an insurance concept. The [current] model entails unsuitably high levels of risk for clients who want a significant floor under the periodic payments from their account-based pensions and are on the cusp of retirement."