The number of CFD traders in most of the countries studied by Investment Trends fell in the previous 12 months but the Australian CFD market bucked this trend. Against a backdrop of lukewarm investor sentiment and low volatility levels trader numbers increased slightly to 42,000 people who traded CFDs at least once in the 12 months to June 2014. The inflows of dormant traders who resumed trading in the last 12 months continued to track upwards reaching a high of 10,000 (up from 9,000), whilst 8,000 new traders joined in the 12 months to June 2014 (down from 9,000). 17,000 CFD traders stopped trading in the 12 months to June 2014 (down from
21,000).

The Investment Trends 2014 Australia CFD Report is an in-depth study of Australian CFD traders’ attitudes and investing habits, based on a survey of 12,398 investors conducted between 28 April and 22 June 2014.

The number of CFD traders increased by 2% to 42,000 (from 41,000) current CFD traders. Compared to the other countries examined by Investment Trends, the Australian CFD market performed well with the UK spread betting, UK CFDs, France CFDs and Singapore CFDs all reporting losses in trader numbers.

The five largest CFD providers by number of primary client relationships were:

* Number of customers who use each organisation as their main provider.

Usage of mobile trading surged among frequent traders

Adoption of mobile trading increased slightly in Australia with 72% (up 2% pts) of current CFD traders using a mobile platform in relation to trading. This is a moderate level among the countries examined by Investment Trends, behind Singapore CFDs (82%), UK CFDs (73%) and UK spread betting (72%).

Usage of mobile trading surged among frequent traders (30+ trades per month) with 33% of frequent traders using a smartphone/tablet as their main means of CFD trading, more than doubling from 15% last year. Frequent traders were also more likely to use a mobile platform with 78% (up 5% pts) of frequent traders using a mobile platform in relation to trading. A more modest gain was observed among mainstream traders, with 17% now predominantly trading via a mobile app, up from 15%.

IG currently has the highest rated mobile app, while FXCM had the largest improvement in mobile trading (now ranking 2nd, up from 4th).

Overall satisfaction eased at an industry level but remains high

After eight years of increasing trader satisfaction at an industry level, satisfaction eased in the last 12 months but remains high. At an industry level, the composite satisfaction score^ of overall satisfaction decreased 2% pts to 70%.

CFD traders assessed their main provider overall and across 16 areas including functionality, price and service. FP Markets leads on overall satisfaction followed by FXCM and CMC Markets.

^ Defined as the composite score where very good = 100%, good = 67%, average = 50%, poor = 17% and very poor = 0%

IG’s improved mobile trading platform, CMC Markets’ platform upgrades and City Index’ new
platform were positively received by clients

Individual providers are constantly improving their offering to their clients. We asked current CFD traders what they perceived as the most useful innovations introduced in the last 12 months from their main provider. IG’s improvements to both their Apple and Android trading platforms have been well received by many of their clients. CMC Markets’ platform upgrades were also well received with clients liking the new pattern recognition tools, portfolio mixer and mobile platform. City Index recently launched their new Advantage Trader platform which was also well received.

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David Storm

Self managed super fund (SMSF) clients are rapidly turning to specialist admin providers, new figures reveal.

According to the OneVue/Investment Trends 2014 SMSF Accountant Report, an extra 35,000 SMSFs started using a specialist provider in the past 12 months.

“Last year it was estimated that 115,000 SMSF trustees utilised the services of SMSF administrators,” OneVue head of platform strategy, sales and service, David Storm said.

“This year there’s been a 30 percent increase, with SMSFs indicating the key reasons are ease of use, low cost and admin efficiency.”

The report meanwhile, found accountants are increasingly considering changing software providers, with 13 percent of those interested in doing so, thinking of progressing to a cloud-based product.Storm said the move to non-installed software solutions is greatly accelerating the delivery of cloud-based accountancy services, which is carrying over to the SMSF sector.

“Of the accountants who indicated a desire to transition, 61 percent stated they’re looking to move to a cloud-based solution in the next 12 months.”

“We believe the ability to allow both the trustee and the accountant to view asset details daily and online, has strong appeal and will continue to drive platform growth in the SMSF sector.”

“OneVue is committed to platform development aimed at SMSFs, and will continue to enhance our current capability.”

Although fees are universally seen as a major barrier for SMSFs using investment platforms, 57 percent of accountants surveyed said they’re appropriate to manage client portfolios.

The top three reasons are consolidated reporting, access to wholesale funds and rates and easier administration, while the common drivers towards a particular platform are good reporting, ease in managing and familiarity

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Robin Bowerman

Vanguard and Investment Trends released the annual results of the 2014 Self Managed Super Fund Report, taking a detailed look at key drivers and challenges for Australian SMSF investors.

The SMSF sector now represents more than 30 per cent of the superannuation industry in Australia and continues to grow with assets increasing 13 per cent to $559 billion in the year to March 2014.  With more than 49 per cent of SMSFs in pension or drawdown phase, compared with 17 per cent for industry super funds, this sector of the superannuation system is blazing a trail in terms of managing retirement incomes.

The report is based on a survey of 2,163 SMSF investors and offers a comprehensive view of the sector—presenting detailed analysis about the changes to how SMSF portfolios are constructed, the increased appetite for international exposure and the growing proportion of investors willing to pay for unmet advice needs.

International exposure

Reflecting rising confidence levels among investors, the intention to invest in international shares by SMSFs almost doubled over the past 12 months to 22 percent (up from 12 per cent in April 2013).

However, common blockers to international exposure include:

• Insufficient knowledge of overseas markets (40 per cent)
• Currency risk (34 per cent)
• Lack of franking credits (33 per cent)

Professionally managed investments can help address many of the common blockers, so it’s not surprising to see a growing proportion of SMSFs who currently invest in ETFs said access to international markets is a key driver.

Commenting on the report, Robin Bowerman, Vanguard’s Head of Market Strategy & Communications, said: “It is clear that SMSF investors are looking to increase their exposure to international markets.

“The increased focus on international investing is valuable in a diversification sense however, we are cautious when key international markets like the U.S. sharemarket have had such strong performance in the past year and hope that advisers and investors are taking a long-term view because too often we see investors disappointed when chasing future returns based on recent past performance.”

Asset allocation

Over a quarter of SMSFs (27 per cent, up from 14 per cent) of SMSFs who made a substantial asset allocation change in the last 12 months did so to increase diversification.

Allocation to direct shares by SMSFs remained steady over the past 12 months (44 per cent of total SMSF assets, edging down from 45 per cent) while their allocation to cash declined to 23 per cent, down from 26 per cent. There was also an increase in the use of managed funds and the average investment by SMSFs who hold managed funds is now $210,000 which is a 23 per cent increase up from $170,000 in 2013.

The number of SMSFs holding ETFs has increased 41 per cent to 53,500 in the 12 months to April 2014 explaining, in part at least, the strong growth in the Australian ETF market which has recently passed $11.7 billion in assets.

The number of SMSFs planning to invest in ETFs for the first time in the coming year has jumped by 76 per cent to 58,000.

“ETFs offer SMSFs great tools with which to implement their portfolio’s asset allocation. They allow SMSFs the ability to access a market or market segment at a low cost, to diversify risk or implement a core-satellite strategy.

“Against a background of strong market returns separate portfolio research carried out by Vanguard’s Investment Strategy Group shows that SMSFs have a starkly different risk profile than that of institutional superannuation funds.

“If SMSF trustees appreciate the level of risk in their portfolio that is great. Our concern is that some SMSFs may feel they are investing conservatively where the analysis shows that they may have quite high levels of concentration and market risk within their portfolios.

“Investors should focus on developing an appropriate asset allocation mix consistent with realistic risk-and-return expectations,” said Mr. Bowerman.

Specialist administration

The Investment Trends research shows in 2014 approximately 150,000 SMSFs (a significant increase from 115,000 in 2013) are administered by specialist SMSF services. Annual tax reporting and audits (54 per cent) and low fees (45 per cent) were the most commonly cited drivers of selecting a specialist administration provider.

“Understandably, super fund costs remain a concern for investors and are a key driver behind the increase in the establishment of SMSFs. Naturally, during periods of flat or negative super fund returns, the number of new SMSFs being established will increase.

“While control always tops the list of reasons for establishing a SMSF Vanguard believes an underlying reason for the growth of SMSFs in the past five years is investors looking to cut the fees they pay superannuation funds.

“The interim report by the Financial System Inquiry raises the question about costs within the Australian super system. That is a debate we must have because in Vanguard’s view the growth in the system to $1.8 trillion of retirement savings has not delivered the lower costs you could expect from such economies of scale” said Mr. Bowerman.

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Vanguard and Investment Trends released the results of the 2014 Self Managed Super Fund (SMSF) Planner Report yesterday.

The report, which surveyed 489 financial advisers in April, demonstrates that trustees’ satisfaction with advisers has continued to grow over the past 12 months, reaching its highest level since the GFC. Positive market performance over the last year contributed to some of the increase, but the research shows that advisers’ technical expertise is also playing a greater role in driving satisfaction. Clarity around fees and charges remains a challenge.

The overall proportion of SMSFs using a financial planner stopped its six-year decline and stabilised over the last year at 41 per cent using one in the last 12 months.

With 54 per cent of SMSFs now open to tapping into advisers’ expertise, a clear opportunity exists for financial advisers. These levels of interest are the highest observed since Investment Trends began tracking this in 2009.

Furthermore, a projected 286,000 SMSFs have unmet advice needs they are willing to pay for.

Over the last year, SMSF trustees have been placing a greater premium on diversification and planners have been responsive to this; a top priority for financial advisers specialising in SMSFs is diversification with 77 per cent (up 10 percentage points) now saying this is a key factor when selecting investments for their clients.

A clear trend emerging is the use of ETFs, particularly to gain access to international markets.

Commenting on the report, Michael Lovett, Vanguard’s Head of Adviser Distribution said:  “These findings demonstrate the significant opportunity professional advisers have to expand their service offering in the SMSF sector. The willingness of SMSF investors to engage with a financial adviser continues to increase, particularly around unmet advice needs such as inheritance planning and protection of assets against market falls.

“While there is a strong message here for advisers around how they can enhance their value proposition with SMSF trustees, that has to be kept in context with the strong correlation between satisfaction with advisers and investment market performance.

“The challenge for advisers is to demonstrate that the value of good financial advice is much broader than investment selection.

“The analysis from SMSF investors found multiple elements that contribute to their satisfaction with advisers – outside of investment selection. These include: technical expertise, tax expertise, quality of support staff and clarity of fees and charges.

“The research also found that the number of specialist SMSF financial advisers is growing and Vanguard welcomes the increasing focus on higher education and professional standards in the SMSF advice sector,” said Mr. Lovett.

Opportunity knocks

Cost of advice remains an issue for investors. Despite this, when specifically asked how they would prefer to receive help from an adviser, compared to 2013, a growing proportion of total SMSF investors (12 per cent up from 7 per cent last year) say they would prefer face-to-face communication even if it will cost more. A larger proportion, 19 per cent, is open to receiving advice over the phone and online.

When it comes to unmet advice needs, SMSFs are seeking ways to protect assets and income against market falls. That may not be surprising considering their demographic, and with the GFC still a recent memory – but it is advice which SMSF trustees are prepared to pay for and suggests the opportunity for advisers to have conversations based more around risk control than just portfolio returns.

The most common areas of unmet advice needs advisers can add to their total value proposition according to the trustees surveyed include:

• Inheritance and estate planning (27 per cent of those with unmet advice needs);
• Age pension and other entitlements (27 per cent); and
• SMSFs pension strategies (24 per cent)

SMSFs who say they have unmet advice needs are prepared to pay up to $2,500 per annum for advice that meets their needs, on average, up from $2,000 last year.

The power of past performance

The 2014 research shows advisers and SMSF investors are increasingly focused on diversification. Over a quarter (27 per cent up from 14 per cent) of SMSFs who made substantial asset allocation changes did so to increase diversification and concurrently 77 per cent of SMSF planners note diversification as their top investment priority up from 67 per cent.

Over the past 12 months, planners estimate they placed 31 per cent of new SMSF inflows in international assets, up from 25 per cent in 2013. They also expect this will grow to 35 per cent over the next 12 months.

“Diversification is critical in managing volatility and giving investors the best possible chance of long-term success. The increased focus on international exposure is valuable in a diversification sense however, we are cautious when key international markets like the U.S. sharemarket have had such strong performance in the past year and hope that advisers and investors are taking a long-term view.

“Ultimately, the value of a financial adviser is in their role as a behavioural coach. This involves understanding clients’ risk appetite and setting the strategic asset allocation for a client’s portfolio,” said Mr. Lovett.

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• Retirees and pre-retirees now account for 82% of planner funds under advice
• North and Asgard Infinity eWrap lead the market in growing their share of the increasingly important retiree and pre-retiree segments
• Annuities are increasingly popular among financial planners

Over 55s now account for four out of five dollars under advice.

An aging population and generational wealth differences have made retirees and pre-retirees the pre-eminent markets for financial planners — and they are set to become even more important in the future, according to a recently released report from leading wealth researcher Investment Trends.

The December 2013 Retirement Planner Report is a comprehensive study of Australian financial planners and advice services for retirees and pre-retirees, together with the evolving attitudes and preferences of investors aged 40 and up. Based on an in-depth survey of 798 financial planners between October and December 2013, the report reveals that retirees and pre-retirees now make up 66% of financial planning clients and account for 82% of planner funds under advice.

With the number of retirees and pre-retirees set to grow from 6.2m to 7.9m over the next 10 years, according to the ABS, their economic importance will continue to increase.

“In 2013, for the first time, retirees held half of all planner funds under advice, up from 46% just 12 months earlier,” said Investment Trends Senior Analyst Recep Peker. “And that’s just the tip of the iceberg. With the first wave of baby boomers only just reaching retirement age, retirees and pre-retirees will continue to demand higher levels of planning support for decades to come.”

North and eWRAP are gaining market share

The growing importance of the retiree and pre-retiree segments make them a key battleground for platform providers seeking to grow market share.

Currently BT Wrap and CFS FirstChoice are the most widely used platforms for both segments, with a total primary market share of 15% each, reflecting their overall market dominance across all age groups.

North and Asgard Infinity eWRAP have been winning a higher number of pre-retiree and retiree clients when compared to their overall market share. In the survey, North stood out for its income guaranteed and capital protected products, together with a wide range of investment options, while eWRAP won planners over with pension payment flexibility, low administration fees and easy online transfers from super to pension products.

“Planners are very demanding when it comes to selecting a platform for their retiree and pre-retiree clients,” says Peker.  “As well as low fees, strong support services and high-quality reporting, they are increasingly looking for well developed transition to retirement capabilities and a wider range of investment options — especially income guaranteed products.”

“We’re also seeing planners taking a more hands-on approach to client education, preferring online calculators and scenario tools to static educational collateral.”

Annuities are increasingly popular

Thirty-two per cent of planners say they recommended annuities in the 12 months to December 2013, up from 26% in 2012 — and that figure is set to rise further, with 37% saying they plan to use annuities in 2014.

“The proportion of planners recommending annuities has increased, despite the current low interest rate environment,” says Peker. “There are strong indications that planners would make even greater use of annuities if some key obstacles were removed.”

Forty-one per cent of planners said a higher rate of return would lead them to recommend annuities more often. Other changes that would encourage greater use include the ability to invest without locking in current interest rates, age pension friendly products and more product flexibility.

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IRESS has continued to develop XPLAN into a world class financial planning application.

XPLAN has achieved the highest benchmark score for any financial planning application in the seven years of the Investment Trends Planning Software Report.

XPLAN was top rated, followed by Coin and AdviserNETgain.

The top rated Hybrid planning/platform integrated planning application was AdviserNETgain/Asgard.

FOFA development has been completed with a new development focus on engagement.

FOFA development has been completed with a range of enhancements to client service package management which give planners the ability to individually manage service package elements and control the level of reporting detail in client Fee Disclosure Statements.

The completion of FOFA development marks the end of several years of software development focussed on practice operations.

“Vendors have moved on from FOFA to refresh application interfaces, mobile functionality development and client engagement,” said Investment Trends Analyst Ian Webster. “Vendors are trying to improve planning efficiency by connecting planners and clients to practice workflow wherever they are.”

Vendors have moved to ensure their online applications are supported on tablets with IRESS and recently Coin releasing tablet apps with planner and client access.

IFAs, institutions and superannuation funds are using technology to deliver a range of scaled advice services.

The introduction of scaled advice has prompted the development of several new online planning applications and services as well as planning practices starting to use technology like video, social media and self-directed advice to develop new client relationships.

“Scaled advice may be an enduring legacy of the FOFA reforms,” said Ian Webster. “After several years focused on developing planning operations functionality for comprehensive planning, vendors are turning their attention to a broader range of advice delivery services.”

Provisio was surveyed as the best superannuation scaled advice application.

Projection based engagement has been a feature of superannuation fund websites for many years. In recent years financial calculators have been replaced by projection based self-directed advice recommendation services and call centre based scaled advice applications for superannuation advice provision.

“Provisio has been part of the development of superannuation advice technology for many years and has been joined by several other applications offering different approaches to scaled superannuation advice delivery,” said Ian Webster. “Rubik’s Proviso was surveyed as the best superannuation scaled application followed by Decimal and XPLAN Engage.”

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Investors in ETF funds up dramatically in the past year.

The number of investors in exchange traded funds (ETFs) has surged dramatically over the past year to over 100,000, according to the findings of the BetaShares/ Investment Trends ETF Report released today. Investor numbers have increased 50% in the 12 months to November 2013, the fastest growth seen in the last four years.

The BetaShares ETF Report is a leading comprehensive quantitative and qualitative research study of Australian ETF users available to the market, based on responses of 10,421 investors and 734 advisers on their experiences and usage of ETFs.

Of the estimated 102,500 ETF investors, 46,000 investors held ETFs through SMSFs, illustrating the continued importance of this investor class in driving industry growth. The report also noted that over 50% of investors were using ETFs to gain overseas market exposure vs. approximately 40% last year, highlighting the value investors see in utilising ETFs as an access vehicle.

“The ETF industry experienced its highest level of funds growth ever in 2013, and with that has come a gradual shift in the way investors approach and use ETFs in their portfolio”, said Alex Vynokur, Managing Director at BetaShares. “While the traditional view of ETFs as low-cost, transparent ways to obtain passive domestic market equities access is still relevant, investors are also extending that to look at overseas equities, currency or harder to obtain exposures.”

ETFs poised for further growth

After reaching a record high of $10 billion in funds under management at the end of 2013, this year looks set to be equally strong for ETF growth. A record ~79,000 non-ETF investors  plan to invest in ETFs in the next 12 months, while 70,500 current ETF investors also plan to make an additional investment in ETFs in 2014.

For those who don’t invest in ETFs currently, lack of knowledge about ETFs and how to use them in a portfolio remained the two most common reasons stopping investors from using ETFs. This indicated an opportunity for advisers and ETF providers to work together to educate investors on the value of ETFs in portfolios, said Mr Vynokur.

“It’s important especially as the local ETF industry matures that providers maintain an ongoing dialogue with advisers and investors to help them understand how ETFs can help achieve specific investment goals”, said Mr Vynokur. “Given the expectation of continued strong growth in the sector, keeping up with investor demand for education is vital.”

Gap remains in adviser influenced ETF investments

Mirroring the growth in usage by individual investors, adviser usage of ETFs grew from 28% to 33% of advisers – the highest level to date. However, while 33,000 new ETF investors joined the market in 2013, the percentage of investors who said their adviser played a role in this investment remained at 26%, the same as last year’s figure.

“It’s interesting to note there is still a considerable gap between self-directed and adviser-influenced ETF investing, meaning planners still have a considerable opportunity in front of them to get involved in their clients’ ETF investment decisions,” Mr Vynokur said.

ETF growth not affecting other asset classes

The majority of ETF investments in 2013 came from new money being placed into the market, rather than being redirected from other asset classes. A full 64% of ETF investors made incremental investments to ETFs rather than reducing their exposure to other investments such as direct shares, term deposits.

“The data indicates ETFs are currently satisfying a unique investor need in the market, rather than taking existing funds away from other investment products,” said Mr Vynokur. “The diversification and cost benefits of ETFs mean that they actually appeal to different types of investors than those in direct shares or managed funds.”

Indeed, diversification still ranks as the top reason to use an ETF, with 76% of current ETF investors indicating the diversification aspect was most important to them. Access to overseas markets and low cost were also key reasons why current investors had allocated funds to an ETF.

Australian ETFs – the future

Over the course of 2013, 11 new products were launched on the exchange, and BetaShares believes that over the course of the next few years the ETF product range will continue evolving in the Australian market. From an investor numbers perspective, the ETF report forecasts the total number of ETF investors to range from 126,000-174,500 by end 2015.

“The Australian ETF market continues to mature relative to its international counterparts, and we expect to see ETF usage among investors continue to grow, particularly within the SMSF space. Based on the historical growth rate, we predict assets under management to reach $15 billion by the end of 2015,” Mr Vynokur concluded.

Click here to read the BetaShares/ Investment Trends ETF Report for 2013.

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RBA figures show that the margin lending market rose slightly in the first quarter of 2013, but dipped again in Q2 and Q3 resulting in the total outstanding debt to fall to $11.8 billion in September 2013 (down 7% from $12.7 billion last year). Against this backdrop, the ninth annual Investment Trends Margin Lending Planner Report looks at the way forward for the industry. Key trends include:

Despite improved market outlook, 2013 saw more planners withdraw from margin lending advice

Planners’ average return expectation from the All Ordinaries for the next 12 months rose to 9% (excluding dividends), a three year high, in September 2013. In spite of having an improved market outlook, planners continued to withdraw from margin lending over the last year. The proportion of planners advising on margin lending fell from 55% in 2012 to 45% in 2013 and the total outstanding margin debt from the financial planner channel reduced to $4.4 billion in September 2013 (down 13% since December 2012).

However, in line with the improved market sentiment, the direct investor channel has begun to improve with an outstanding debt of $4.7 billion in September 2013 (up $480 million since December 2012).

It appears that the impact of regulatory reform has not yet finished playing out

One third of planners who still advise on margin lending say recent regulatory changes make advising on margin lending less attractive. 13% of current users said they might stop using margin loans as a result of recent regulatory changes, representing 1,000 planners at risk of exiting margin lending advice. Investment Trends Analyst S M Shahed says, “It is evident from our research that the impact of regulatory reform has not yet finished playing out. Further help from margin lenders with compliance and new licensing requirements is essential in order to stop the outflow in the planner channel.”

Remaining users intend to increase their margin lending activity over 2014

Among the planners who continue to recommend margin lending, intentions of writing new margin loans over the next 12 months rose versus the previous study, with 47% (up from 41%) intending to increase their use of margin lending. Improved conditions (interest rate, market, and client demand) would encourage an increase in their usage of margin lending for 77%, but there are many other things providers can do to help planners, such as simplifying processes and protected loans.

A push from planners could certainly help grow the margin lending market

“A push from planners could certainly help grow the margin lending market, as a large proportion of loans written by planners are new loans rather than a shift of clients between lenders,” said Shahed. Only one quarter of recent margin loans established by planners were replacement loans. In contrast, two thirds of the recent loans established by direct investors were replacement loans.

Pricing remains the main reason planners would switch lenders, but more than last year said they would switch for features

37% of planners say they would switch their main margin lender for lower interest rates (down from 47%). On average they would look for a reduction of 59 basis points in the interest rate for switching to a new lender. On the other hand, 29% of users (up from 20% last year) would switch their main margin lender for better features, citing on average eight different features. The most sought after features include margin call protection (51%) and early margin call warning (50%).

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OneVue head of strategy, sales and service David Storm said an additional 23 per cent of SMSF accountants indicated that they wanted to offer such a solution in the next 12 months, with 47 per cent saying they were interested in doing so in the next few years.

“The report revealed that the perceived benefits of offering an online solution include greater administration efficiencies, accessibility and improved client interaction, as well as more timely information,” Storm said.

“For those not interested in providing such a solution, the main reasons were assurance of data security, cost and lack of client demand, however one in four said they would reconsider if they were assured data was secure.”

Storm said as the $532 billion dollar SMSF industry continues to grow so does the importance of online solutions that reduce administrative tasks and provide greater efficiencies to clients.

“OneVue specialises in providing SMSF solutions to advisers, accountants and other intermediaries and third parties, and they increasingly tell us that online capabilities that lead to greater client interaction and satisfaction is vital in remaining competitive in this digital age,” Storm said.

“Investors are becoming more demanding. They want real time solutions. They want figures updated all the time.

“One of the big pushes we’ve seen in the SMSF sector has certainly been around cloud based computing solutions, particularly when it comes to administration efficiencies, greater accessibility and providing more timely information.

“Cloud based services enable SMSF professionals to share information and data with clients more readily and provide real time access to investment valuations which is an extremely valuable service advantage.

“Everyone catering to the SMSF industry right now is trying to stay ahead of the pack in terms of the provision of online technology solutions, with some of the larger institutions spending millions of dollars to update legacy systems so they can in effect catch up to those leading innovation.”

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• Growing investor and planner confidence has seen money start to flow from cash into growth assets
• Advised clients are allocating more of their capital to international investments than at any time since the GFC, with US assets especially popular
• A growing proportion are using ETFs to gain international exposure

Planners are turning offshore for growth

Planners looking overseas to grow business.

The level of new client investments directed to international assets by financial planners has surged to its highest level since the GFC, according to a recently released report from leading wealth researcher Investment Trends.

The August 2013 Adviser Product and Marketing Needs Report is a comprehensive study of asset allocation trends among Australia’s financial planners, together with their views on fund managers, investment products and researchers. Based on a survey of 734 financial planners nationwide between July and August 2013, the report reveals a growing trend away from cash and towards growth assets.

“Our research confirms that improved investor confidence and low interest rates have prompted planners to cut allocations to cash and direct more capital towards listed investments and other growth assets,” said Investment Trends Senior Analyst Recep Peker. “Now an increasing proportion of that money is being invested offshore.”

Between 2012 and 2013, the allocation of new client investments to international assets jumped 5 percentage points to 31% of new client investments, the highest level since 2008. Much of that growth appears to have been driven by client demand, as well as planner recommendations.

“Our analysis shows that the proportion of sophisticated investors intending to increase versus decrease their exposure to international shares surged 15 percentage points between August 2012 and August 2013, from 3% to 18%,” says Peker. “This suggests that the improving performance of overseas markets has seen a spike in investor interest over the last year.”

US assets increasingly attractive

While multi-region funds remain the most sought option for gaining overseas exposure, US assets have become increasingly attractive to investors and planners as the North American economic recovery gains pace. Asked which regions they wold encourage clients to invest in over the next 12 months, 40% of planners nominated the US or North America, up from just 10% in 2009.

Meanwhile, interest in China has dwindled, with the proportion of planners planning to recommend single-region Chinese exposure falling from 35% in 2010 to around 12% in 2013.

“The last few months have seen a shift in global economic performance as the developed economies continue to recover while the pace of growth in emerging markets slows,” says Peker. “That’s encouraged a renewed investor focus on developed markets in general and the US in particular.”

ETFs gaining ground

International equity funds continue to be the dominant method of accessing international assets, accounting for 65% of offshore investments by planners in 2013. But ETFs are gaining ground, albeit from a relatively low base, with the proportion of offshore investments made through ETFs growing 40% over the last year, from 5% of all investments to 7%. ETFs look set to become even more popular in the future.

“When we asked planners which international investments they intended to use over the next 12 months, one in five nominated ETFs,” says Peker. “That’s consistent with the general growth we’ve observed in ETF usage by planners, with a third of planners now recommending ETFs to their clients.”

“ETFs are a particularly popular option for planners seeking exposure to the US, with 30% saying they would like to access the US through ETFs.”

Lack of franking credits holds investors back

Despite growing interest in international assets, a number of obstacles stand in the way of increased investments offshore.

“The lack of franking credits from overseas investments continues to be a key barrier, cited by 43% of financial planners,” says Peker. “Client preferences and risk profiles can also hold planners back, given the higher perceived risk of some international markets.”

“Interestingly, 39% of planners also nominated currency risk as an issue, even though many analysts predict that the Australian dollar will trend lower in the year ahead, potentially benefitting those who have already invested offshore.”

“But while the current high dollar continues to offer good value to Australian investors looking overseas, any significant fall in exchange rates could be expected to impact demand.”

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