Advice beats DIY, Legg Mason finds

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Advised investors across all age cohorts are more confident than their DIY peers, according to Andy Sowerby, Legg Mason head of Australia and New Zealand. He said the latest annual Legg Mason global investor survey found those who used a financial advisor were more confident about the future, had better-diversified portfolios and were more knowledgeable than non-advised individuals.

“There’s a very clear message that financial advice is highly valuable to investors,” he told an audience in New Zealand last week. Investors who accessed financial advice also enjoyed better returns, the recently-published Legg Mason survey found.

“The benefit of making advised investment decisions is clear; for example, investors see average returns of 6.2 per cent from income-producing assets compared to 5.6 per cent for DIY investors,” the survey report says.

However, Sowerby told the group of advisers in Wellington, NZ, that Australasian investors might have to dial down their income expectations in the current era of ultra-low rates.

“The survey found that expectations of income returns were falling but not as fast as reality – especially in Australia,” he said. “Australian investors still expected to get annual income returns of 7.1 per cent compared to 5.4 per cent for European respondents. Given the outlook for interest rates and where bond yields now reside this is just too optimistic.”

In its sixth iteration, the latest Legg Mason survey drew responses from almost 17,000 investors in 17 countries and across age, gender and income profiles.

Aside from the importance of advice, Sowerby said another stand-out finding of the survey shows a fast-rising curiosity about environmental, social and governance (ESG) investing… as well as deep confusion.

“The biggest surprise in this year’s survey was the huge jump in the proportion of investors who want to understand ESG,” he said. “And that’s across all cohorts, from the millennials to the baby-boomers.”

About half of respondents said they invest in companies or funds based on ESG considerations, the Legg Mason report says.

But almost 60 per cent cited a lack of information about ESG as a barrier to committing more to the sustainable investment cause.

“This confusion around the different approaches to sustainable investing, and their unclear taxonomy has the potential to cloud investment decision making,” the report says. “In our view investors need more guidance if they are to take a clear-headed view on what they consider when looking at ESG metrics.”

Sowerby said a number of other themes including fee compression, fintech, the drift to passive investing and increasing regulation were absorbing both investors and fund managers across the world.

Regulation, he said, was converging globally as authorities and industry shared knowledge and experience from different jurisdictions.

The recent NZ proposals to sheet product suitability requirements back to manufacturers as well as distributors chime with the UK experience.

Sowerby said when the rule requiring manufacturers to ensure their products were suitable for clients was introduced in the UK, most providers thought it would be too difficult to implement.

“But we found a way to make it work,” he said. “Australia is beginning to legislate down that road now, too, with some exceptions where distributors have full responsibility. But in the UK the responsibility for suitability resides with the manufacturers.”

Retirement income was also looming as a common problem in many countries, Sowerby told the Wellington audience, which would have to be solved through cross-industry and political co-operation.

“As an industry we’ve been good at the accumulation part but we need to find better ways to deal with turning that into a reliable and sustainable retirement income,” he said. “Decumulation is actually much harder to manage than accumulation as it is incredibly personal, varying from individual to individual.”

Insurers, asset managers, data and technology providers, and governments would ultimately need to “sit around a table together” to devise sustainable retirement income solutions, Sowerby said.

Legg Mason is a US-listed ‘multi-affiliate’ investment firm that owns nine underlying fund managers including Brandywine Global, Western Asset Management and Martin Currie (all three have NZ clients).

The group, which manages about US$760 billion, has sourced about $800 million from NZ clients, largely via the Brandywine Global opportunistic fixed income fund (including through a portfolio investment entity version issued by Implemented Investment Solutions).

Sowerby said Legg Mason itself was undergoing a strategic restructure as it sought to optimise operations, rationalise costs and increase synergies across the group. He noted that savings would have minimal impact on client-facing roles and did not impact any of the group’s investment capabilities.

Last week Bloomberg reported Legg Mason cut 12 per cent of its global workforce “just days after adding investor Nelson Peltz to its board”.

Peltz is a partner of New York hedge fund Trian Fund Management, which took a 4.5 per cent stake in Legg Mason last week.

Most of the staff cuts would occur in “shared services like human resources or finance”, Reuters reported.

“At Legg Mason, almost 100 of the cuts will be staff in the US, according to Mary Athridge, a company spokeswoman. The rest will come from offices in Europe and Asia,” the Bloomberg story says.

– David Chaplin, Investment News NZ

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