Since the emergence of “Modern Portfolio Theory” and the “Capital Asset Pricing Model” in the late 1960s, institutional investors have taken a quantitatively driven approach to portfolio construction, looking to create portfolio diversification and obtain better risk-adjusted returns by balancing their asset-class exposures. This journey has seen several important advancements in thinking about how to optimally achieve desired results.
Funds that want to take the total portfolio approach first need to get the total portfolio view. To do that they not only need data – and lots of it – but a rock-solid understanding of exactly how they’re going to use it.
Financial advice can help member retention
(Pictured: Salvador Saiz)
Financial advice is the most important service that super funds can provide their members in the run-up to retirement, according to a survey of members of all types of funds. Only 13 per cent of those currently using an adviser do so from one inside their fund.
The survey of 997 members aged 45 or over, by CoreData, found that 40.4 per cent of industry fund members had used their fund’s advice services. The report’s author, Salvador Saiz, said this reinforced the need for industry funds to better engage their members to take up advice.
Saiz, CoreData’s head of super and SMSFs, said: “There still remains a large number of funds for which advice is not a key service or which is not deemed beneficial for their membership. On the other hand, there are a number of funds that have realised the value of advice as a key retention and engagement tool and have focused their efforts on building their internal advice capabilities even further. It’s no surprise that these funds have seen a direct link between these efforts (the marketing/communication of advice services) and increased member retention and engagement.”
The survey was for the researcher’s annual ‘Post-Retirement Report’, but Saiz said the results showed the growing need for super funds and the sector as a whole to not only develop appropriate retirement products, and education around these, but most importantly to focus genuine effort on promoting the value of advice across the various channels.
“Super funds need to leverage this latest demand or risk members engaging with an external advisor or accountant, if they haven’t already,” he said.
More than half of Australians fail to make extra contributions to their fund in the lead-up to retirement, the report says, and this is a danger signal for retirement lifestyle being placed at risk. Respondents expected a median of 25 per cent of their retirement income coming from the old-age pension, compared with the current actual amount of 7 per cent of retirees’ income being drawn from the government pension.
The report says: “Financial advice has an important role to play in encouraging additional contributions (and educating members about the benefits) and helping members with goal setting and is an area where super funds need to focus more on with both low and high balance members.
“This should contribute to greater confidence in meeting retirement goals, with a large proportion of members in this age demographic currently feeling financially insecure. At a sector level, industry fund members feel the greatest level of insecurity, slightly ahead of retail fund members. Those that are advised are more likely than those who are unadvised to feel financially secure.”
The three most popular retirement products, apart from advice, that respondents wanted to see were: options for sustainable income and capital protection (42.0 per cent), health insurance (39.1 per cent) and general insurance (37.1 per cent).
