Planners target growth through diversification

The outlook by Australian investors’ on Australian shares continues to deteriorate since the beginning of 2014, with the typical investor expecting the share market to grow by just 3 per cent in the next 12 months (versus 7 per cent at the end of 2013). But this cooling outlook has not yet deterred planners from investing in growth assets, according to the latest findings in the Investment Trends September 2014 Adviser Product Needs and Marketing Needs Report.

Interestingly, the average planner invested only 15 per cent of new client flows into cash products over the last year; the lowest level seen since the end of 2010 and significantly below the 2012 highs of 31 per cent of new client flows.

Planners are also actively investing their clients’ excess cash holdings, with short-term cash held by planner clients collectively down from a high of $78 billion in 2012 to $47 billion in 2014.

“We’re currently going through an interesting period where the average investor’s capital gain expectations from domestic equity markets is deteriorating, but at the same time there are many more who are seeking growth in their portfolios, perhaps because of suppressed yields,” said Investment Trends senior analyst, Recep Peker.

“Planners are addressing this need by targeting growth through diversification, with an increased preference for simpler products and passive strategies.

“Planners’ usage of indexing/passive investing is now at the highest level observed since Investment Trends began measuring this in 2010.”

According to the results of the study, as a result of demand from investors, planners placed a third (33 per cent) of new client investments in international assets over the last year, up from lows of 26 per cent just two years ago.

Interest in multi-region funds have increased in popularity, with 70 per cent of planners intending to use these in the next 12 months, up from 62 per cent in 2013 and 49 per cent in 2012. This has led to a decrease in interest by planners in using single-region global investments, with only 28 per cent of planners saying they intend to use US specific funds in the next 12 months. This is a drop from the six-year high of 40 per cent last year.

“The US is no longer as hot a destination as it used to be for financial planners,” said Peker. “Considering the significant gains achieved by the Dow over the past few years, it’s natural for some to feel it’s near a peak and seek to diversify their exposure.”

Underpinning these findings was a growth in the demand for information by planners from their fund managers, with 74 per cent of planners saying they want more information than they are currently receiving, up from 58 per cent in 2012 and 39 per cent in 2013.

“Planners want to make the most of the current increase in demand for financial advice from Australians, and one way of doing so is to have access to tools and collateral that helps them effectively get clients on board,” said Peker. “We’ve seen planners’ demand for information and educational material increase across the range of products they use, including from fund managers.”

The Investment Trends September 2014 Adviser Product and Marketing Needs Report is based on a survey of 768 financial planners in September 2014.