The latest research into financial advisors’ attitudes to fixed interest investments for retirees, and expected future recommendations, shows a dip in future allocations compared with last year’s record actual allocations.
But the research, commissioned by the big global bond manager PIMCO and undertaken by specialist research firm Marketing Pulse, shows allocations are, and will remain, high notwithstanding the view that interest rates cannot get much lower in most parts of the world.
The percentage of advisors whose allocations to fixed interest for post-retirement clients were above 20 per cent rose from 41 per cent in July 2010 to 56 per cent in December 2011 and then the record 59 per cent in December 2011. In terms of their expectations, though, the percentage with the same high allocations dipped from 54 per cent in December 2011 to 49 per cent a year later. This is still higher than the 42 per cent expectation recorded in July 2010.
Marketing Pulse, which measures advisor attitudes around Australia to a range of financial services topics and which recently started a UK operation for similar research, surveyed 245 advisors in January this year. The advisors received an incentive to complete an extensive online survey form.
Between December 2011 and January this year, advisors seemed to develop an increased level of comfort with fixed interest and, for most, changing macro-economic conditions were having little impact.
Asked how recent uncertainty would impact on allocations for retirees, the proportion who said they would decrease fixed interest exposures fell from 53 per cent to 15 per cent in the 12 months between the last two surveys. The proportion for whom changed conditions meant no impact on those exposures, rose from 46 per cent to 65 per cent and the proportion who would increase exposures jumped from 1 per cent to 20 per cent.
But, in keeping with the slight concern, probably, about the future direction of interest rates, the proportion who expected to decrease allocations to fixed interest rose from 4 per cent to 24 per cent, the proportion for whom there would be no change rose from 56 per cent to 67 per cent and the proportion for whom an increase was on the cards fell from 39 per cent to 9 per cent.
Haissam Aoun, one of the principals of Marketing Pulse, said the headline results of the survey were probably not surprising, however, there were some interesting themes which emerged.
For instance, there was a better understanding among advisors that passive fixed interest funds would perform badly in a rising rate environment – 65 per cent were concerned with lower returns associated with passive fixed interest funds and 66 per cent believed that a major advantage of an actively managed fund is its ability to mitigate against rising interest rates.
Peter Dorrian, PIMCO’s head of global wealth management, Australia, said: “This annual research project helps ensure that our educational work is focussed on the issues of most concern to advisors and their clients, so that advisors are armed with information that can be used to explain the outlook for their investment portfolio over the year ahead.”
PIMCO has been the most successful fixed interest manager, in terms of fund flows, in most major markets since the global crisis starting in 2008. In Australia, in the retail market, its main competitor in the past few years has not been other fund managers but, rather, bank term deposits. Australian banks pay higher TD rates for smaller customers than they do for institutional investors.