Positive signs on the horizon for financial planners

Australian financial planners have faced some of their most troubling years, but Vanguard’s Michael Lovett suggests a bright outlook is beginning to emerge – something which is confirmed by recent survey evidence. 

A myriad of change including reforms, market volatility and industry consolidation has seen the storm clouds settle in over the advice sector in recent years, but a Vanguard survey records a distinct change in the outlook of advisers moving into the second quarter of 2013. 

Almost 800 advisers who attended Vanguard’s annual adviser forums in Sydney, Melbourne, Brisbane and Perth, participated in answering a series of questions throughout the event, sharing their views on market sentiment, the Eurozone, investment choices and the self-managed superannuation fund (SMSF) sector. 

Not surprisingly, with the news in early February of the Australian sharemarket rising up to pre-GFC heights, advisers were feeling upbeat about investment markets, with just shy of 83 per cent saying they were either positive or hopeful and almost no deviation from state to state.  

A vast majority (over 80 per cent) were intent on recommending diversified portfolios to investors, and there was a pretty even split between those who might use more direct investments or managed funds to achieve this (49 per cent to 51 per cent respectively).

Attitudes towards the uses of indexing indicated that a majority of advisers saw no correlation between the state of the market and the success of index funds, perhaps diffusing some debate on this topic. 

Similarly upbeat – or at least hopeful – were advisers’ views of what will transpire in the Eurozone.

We asked attendees to chose between three scenarios for how the situation might pan out – if they thought the worst of the crisis was over and euro markets might pick up soon; or the crisis had been averted for now and the Eurozone would muddle through a slow recovery; or alternatively if they thought that we are yet to see the worst of this crisis. 

Nearly 70 per cent thought that we would see Europe muddle through its issues in a slow recovery; however 23 per cent thought that the worst was yet to come. Not many expected to see European markets pick up soon (8 per cent).  

Keynote speaker for the sessions, Dr Peter Westaway, Vanguard’s European chief economist, reflected this consensus view that the most likely outcome would be a long, slow recovery. 

However,he warned advisers that no one can really know what will occur in markets, with his over-arching counsel being that advisers should focus on broadly diversified portfolios which can both capture the highs and help to buffer the lows of volatile markets.

To demonstrate this, Mr Westway’s presentation reflected on portfolio outcomes since 2007 within broad and narrowly diversified portfolios.  

Given the billions of dollars pouring into SMSFs, we took the opportunity to ask advisers to indicate the extent of their involvement in both advising clients to set up their retirement savings in an SMSF structure, and what percentage of their businesses was currently providing advice to trustees of these funds. 

On average across the states, there was a 64/36 per cent split between advisers who regularly recommend an SMSF structure to clients and those who didn’t, potentially reflecting the fact that this is specialised area which advisers may be choosing to align their business to or not. 

Recent research that Vanguard commissioned Rice Warner Actuaries to conduct (in collaboration with SPAA) assessing the needs of SMSF investors confirmed that these clients were seeking out a different kind of advice to help them manage their savings, aligned to their need for more control and their sophisticated level of understanding of investment strategies. 

Only 13 per cent of advisers told us that the majority of their existing client base were SMSF investors, while 55 per cent of those surveyed said that SMSF investors represented less than 10 per cent of their business. Numbers here varied a bit more, most likely reflecting differing population demographics from state to state. 

Notwithstanding some clouds around the answers to our test questions of attendees footy views, its seems that the forecast is for fair weather for advisers during the year ahead, with optimism and a sensible balanced approach to investment strategy on the horizon for most. 

Michael Lovett is head of intermediary distribution for Vanguard Australia.