Financial advisers lack an understanding of fixed income because fixed income managers have over-complicated the products' roles in a well diversified portfolio, according to the head of asset management Australia for Goldman Sachs, Philip Gardner.
Professionally managed balanced funds often had an exposure to fixed income, but the average retail client's portfolio had little fixed income or held specific types like credit, hybrids and term deposits, according to Gardner.
"I do think that there's a fear or lack of awareness or understanding of fixed income products in the advice industry, which I think is unfortunate because they are the building blocks," he said.
Gardner said while fixed income products were the building blocks of a good retirement or savings plan, the role they could play was lost in jargon about complex issues like duration and term structure.
"I think what happens is that fixed income managers tend to over-complicate their asset class and equities managers tend to over-simplify their asset class … I think they (financial planners) find it hard to understand what I think should be relatively simple concepts of fixed cash flows on fixed dates," he said.
Gardner said retail funds included equities as standard with fixed income as optional, whereas the reverse should be true.
"You want to start at the end of the spectrum where by default you've got fixed income in your portfolio and you're making a conscious decision not to have it in there if you don't like it," he said.
Fixed income products had been confused and investors burnt using hybrids or credit as pure defensives – which was not their role, Gardner said, so investors had to be sold on the asset class' merits.
"The industry needs to get to a point where fixed income is more of a natural asset class," he said.
Investors could not win on all fronts, he said, but unlike six months ago when they would unconsciously roll over term deposits, they were now thinking about investment alternatives.
