'Alarmingly low' independent financial advice

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Australians are using the services of independent financial advisers at “alarmingly low levels”, according to Goldman Sachs Asset Management.

The asset management company’s annual investor survey has found while Australians are more upbeat about the economy and keen to learn more about investments, reliance on independent financial advice has fallen.

Only 10% of retail investors now rely on their financial adviser to make investment decisions, compared to an already low 17% in 2012.

Instead, 32% of investors prefer to rely on investment tips from media commentators and experts when making financial decisions, up from 25% in 2012. Twenty-four per cent of investors rely on tips from friends, family and workmates, up from 14% in 2012.

Jessica Jones, GSAM’s Asia-Pacific managing director and head of third party distribution, said these findings were worrying.

“This is particularly concerning given the clear signal from investors that their knowledge and understanding of certain asset classes could be improved.

“There is a real need and opportunity for advisers to engage with retail investors to help them better understand risk and diversification. GSAM plays an active role in helping advisers bridge this gap.”
Interestingly, the research showed of the 10% who relied on a financial adviser, there is a higher proportion of women (46%) than men (37%).

The research also found there is a significant disconnect between investors’ risk appetites and asset allocation strategies. While continuing to profess an aversion to risk, investors are increasing allocations to riskier asset classes such as equities, while only 13% of investors state that they hold diversified portfolios, Goldman Sachs said.

The report concluded a lack of understanding of different asset classes is holding retail investors back from more appropriately diversifying their portfolios, and recommended allocating more investments to fixed income assets. 

“While equities have performed well over the past 12 months, we are concerned that retail investors are over exposed to volatility in this asset class and are not recognising the importance of diversification,” said Jones.

“We believe that emerging markets will account for 80% of global GDP growth over the next decade. Despite volatility in emerging markets over the past year, GSAM advocates a strategic allocation to these markets and an actively managed approach.”

Six hundred Australian retail investors were surveyed by independent research firm Colmar Brunton.