PwC has released a new report, examining the future direction of interest rates.

It says there is a 75% probability that the 10-year swap rate will be at 4% or below for the next two to five years.

Financial adviser Martin Hawes said that meant some advisers would have to change their investment strategies, particularly for clients who were worried about income.

“We need to move instead to think about total returns. A return which is a capital gain, which you can expect over long periods of time, is not quite as good but is valuable as well. You can access that to buy the groceries by selling units or shares.”

He said some clients could shortchange themselves by "scrambling around the place" looking for the highest interest rate they could find or the best dividend yield.

“If you say we won’t buy this Ryman share because it has a 2% dividend yield but instead buy something else with 7%, that’s the wrong way to think about it. Just because most of the return is in capital gains should not mean you don’t invest in it. The total returns should be about the same. 

“It’s a mindset change for clients who are looking to use their investment portfolio to get the necessities to be able to live. They immediately think of income, how can I do better than the 3% I can get from the bank and thrash around and might end up taking more risk.”

He said some investors were foregoing international investment exposure because they could get better dividend yields in New Zealand.

Jeff Stangl, of Massey University, said the biggest problem for advisers was making sure clients remained in appropriate investments for their circumstances.

"Advisers need to be aware if they are moving their investors out of their stated risk profile into different asset categories. That's a real issue."

He said it was something that was becoming a big problem as people who had budgeted a set amount for retirement realised they were not going to get the interest rates they expected.

Hawes agreed it was also important to maintain asset allocations and not be enticed by past returns into becoming too overweight in a particular asset class. “It’s very tempting to become more heavily weighted into equities but when you do that you have to realise you are taking more risk.”