Australian investors may have built up a so-called "wall of cash" as they cling to safety in volatile times, but new research conducted by Wealth Insights suggests planner and client caution will prevent that cash flooding back into the markets when conditions improve.
Pointing to research findings showing the degree to which advisers are now taking income from sources other than managed funds, Wealth Insights managing director Vanessa McMahon said cash had become its own very legitimate asset class.
Further, she said that the number of market false starts which had occurred since the onset of the global financial crisis had made both planners and their clients very conservative.
"Virtually every planner has lost a client or two and every planner has an unhappy client or two," she said. "The net result is that when markets finally begin genuine improvement we are not necessarily going to see a wall of cash flooding back the way it might have done in the past."
McMahon said focus groups conducted by Wealth Insights suggested that many planners had been cautious because previous efforts to return clients to the market had not ended well, and had created what she termed "loss aversion".
"In some cases, I would say it might better be described as 'hyper-loss aversion'," she said.
McMahon said that Wealth Insights data revealing advisers' sources of revenue between 2007 and September, 2012, had not only highlighted the movement of investments out of managed funds and into cash, but also the degree to which planners had not really diversified their revenue streams.
She said while the research certainly confirmed the increasing numbers of planners writing life/risk as a revenue-generator, they seemed not to have looked at other opportunities.
"Despite reports that advisers are diversifying their revenue streams, most advisers have not," McMahon said. "Their practices, for the most part, continue to focus on investments and life insurance."
She said that, nevertheless, advisers now received equal revenue from advising and placing other investments and life insurance.
