Legg Mason’s global investment survey: future generations face challenges to wealth

Matt Schiffman

The majority of Australian investors believe the investment environment facing their younger counterparts will be more difficult, according to Legg Mason’s 2014 Global Investment Survey.

The survey, which looked at the attitudes of 4,200

affluent investors in 20 key markets, found Australian investors were particularly concerned when it came to the long-term future of the investment landscape.

Overall, 70% of Australian respondents felt investment prospects would be worse for future generations. Only 45% believed they were currently doing very well or extremely well at saving for retirement.

Legg Mason’s Global Head of Distribution Marketing, Matt Schiffman, said the results demonstrated the significant challenge ahead for local investors to achieve their investment goals.

“Australians as an investor group display a larger level of concern at the way the investment landscape is changing”, said Mr Schiffman. “Low interest rates and rising property prices are impacting the ability of their younger family and friends to get on the investment ladder, and they are searching for new opportunities to generate the income they need.”

‘Reality gap’ persists for Australian investors

The survey also identified a significant gap between those investment returns Australian investors expect to get, and what they are actually receiving. While investors expected an average 9.2% annual return, the survey found they were currently receiving 6.2% on average – a ‘reality gap’ of 3%.

Interestingly, although Australians invest 10% more in property than the global average, and give property the highest allocation out of all their income producing investments, the ‘reality gap’ was most pronounced in property investment. Australians’ property investments yielded them an average of 3% per year, well below the expected 9.2%.

“Australians have a well-documented love affair with property, but current low average yields in this sector are affecting income opportunities for investors,” said Mr Schiffman. “We found returns were closer in line with expectations for asset classes like equity income and guaranteed income products, which were less popular with Australian investors.”

Emerging economies present best opportunities

When it comes to global investments, the survey found Australian investors are increasingly looking outside of traditional investment destinations and towards emerging economies. Two thirds (66%) of Australian investors believe China presents the best international investment opportunity over the next 12 months, while over half (55%) saw opportunities in emerging markets in general.

However, the incidence of overseas investing among Australian respondents was generally low compared to the global average. Less than two thirds (60%) of investors allocated more than 1% of their portfolio to international investments, while only 40% had increased their focus towards global opportunities in the past five years.

“Australians are generally more reluctant to look outside of their home market for investment opportunities,” said Mr Schiffman. “This could be a result of tax efficiencies and compliance issues that serve to reinforce the home bias, as well as a generally risk-averse investment style – 77% of investors described themselves as ‘conservative’ in outlook.”

Australian advisers compare favourably

The Global Investment Survey also examined investors’ attitudes to their advisers. Australian advisers scored better than their overseas counterparts when it came to tailoring advice (43% of investors rated their adviser well in this regard) and taking time to know their client (45%), but were below the global average in bringing clients unique investment opportunities (30%) and asking the right questions (30%).

Mr Schiffman said the findings presented important insights as to how Australian advisers could improve the client experience. “While the standard of advice in Australia is comparatively high from a global standpoint, opportunities exist for advisers to improve their service offering, particularly around responding more rapidly and comprehensively to client needs,” he said.