Receiving advice and guidance has been identified as a factor making up a successful retail investment system. Vanguard has shared two policy recommendations to ensure greater advice accessibility.
The firm flagged that Australians are holding more money in cash than in investments, with direct investment in listed equities standing at 30 per cent and just 3 per cent for bonds.
If 10 per cent of their excess savings, based on the amount of cash currently being held in Australian savings accounts, is reallocated into capital markets, then this could add as much as $185 billion into capital markets, it said.
The spectrum of advice plus financial literacy are two critical elements allowing investors help with their investments as they tend to lack confidence and knowledge. The fund manager said it believes there are two ways this could be improved.
“Advice” in this case can range from embedded guidance in product design, digital nudges, personalised guidance, simple limited robo-advice and comprehensive advice which varies depending on the complexity of the individual needs.
Advice accessibility has been an established problem for many years, thanks to the combination of high advice fees and a low supply of advisers.
According to Investment Trends, 16.4 million Australians indicate a need for guidance on finance-related matters, with 10.2 million planning to seek a financial adviser. However, of these potential clients seeking an adviser, over half said they would prefer one-off episodic advice rather than traditional, full-service models.
Inheritance and estate planning are the top areas where advised clients are willing to pay most for advice ($1,690), followed by buying a home ($1,270) and retirement planning ($970).
Vanguard said: “Investors need access to a full range of support, guidance and advice to suit their individual circumstances. Regulatory frameworks that facilitate digital services can help meet the needs of a growing section of society.
“Policymakers should develop targeted, research-based national financial literacy plans to build consumer confidence in investing. Regular national research is essential to understand issues, track progress and identify effective interventions.”
Daniel Shrimski, managing director of Vanguard Investments Australia, said: “While Australia stacks up relatively well on a global stage in terms of supporting retail investors, there are key opportunities for Australian policymakers to further improve the investment landscape outside of superannuation.
“Vanguard’s research provides key insights on the steps needed to motivate more Australians to invest outside of their super, including through new tax incentives and by helping more people to make the best investment decisions.
“We are keen to work with Australian policymakers to help further refine the existing regulatory system in a way that supports retail investor outcomes at all levels.”
Last week, Money Management covered how investors feel secure when holding cash during times of market volatility.
Coastal Advice Group chief executive Daniel Brown suggested that while the investment value of cash fluctuates as the economic environment shifts and typically generates a lower return than equities, the real value for clients in holding cash is the sense of security and freedom it provides them.
“I think it’s better to talk with the clients about the worst case scenario, and hold a certain cash portion that just allows them to ride out that short period of volatility,” Brown told Money Management.
“For example, if they think $50,000 would maintain their lifestyle for 12 months, make sure that they’ve always got $50,000 in their cash account, in whatever product they’re using. Then, if markets are volatile, as is often happening, yes their balance changes but their lifestyle does not, and we just don’t want to trade off lifestyle.”
