According to Griffith Business School senior lecturer Rakesh Gupta, the number of Australian investors choosing to take up professional advice from a financial planner is a concerning development.
“There is widespread reluctance among investors to seek financial advice,” Dr Gupta said in a statement revealing his latest research findings.
“There needs to be a change in mindset. People need to think about the bigger financial picture and see past the accountant they visit once a year,” he added.
Dr Gupta’s call for greater appreciation of the work of holistic and strategic financial advisers comes off the back of his research finding that there is a concerning focus on managed fund past performance from Australian investors.
Having analysed more than 20,000 individual funds, Dr Gupta – in association with a team of researchers from the University of St Thomas in Minnesota in the United States – found that asset allocation in the managed fund industry is determined largely by fund performance.
“There is clear evidence that investors base their decisions primarily on past performance of the funds,” Dr Gupta said. “They may end up pursuing short-term strategies purely based on past returns of the funds, which can be detrimental to their long-term investment goals.
“Misallocation of funds by uninformed investors may result in significant under-performance of portfolios, leaving the public sector and ultimately the taxpayer left to service and support retirement. This is money down the drain in every respect.”
The fact that – at $63,794 per person – Australia has the highest per capita investment in managed funds in the world demonstrates that investors have not taken advantage of the superannuation choices legislation introduced in 2005, the paper said.
More broadly, Dr Gupta said Australia is “no better and possibly worse” than other OECD countries on financial literacy.
I am 62, retired, consider myself financially literate, have taken advantage of all superannuation choices made available 2005-06; including the maximum contribution limits, TRP etc.
Yet, I am one of those who ALSO have a substantial amount (outside super)in Managed Funds.
Why?
Because we are afraid of legislative risk. You would not have all eggs in one asset class – so we would not have all eggs in just Super.
Say “limits” were set on lump sum withdrawn from Acc. Based Pensions.
Example: my wife & I have not paid for Private Med insurance over our 23 yrs in Oz. Touchwood had only minor illness with little money outflow for medicals. We HAVE (so to speak) taken medical insurance by “paying” the $2,200 yearly into the Managed Fund, & have a substantial pot(with compounding returns.
If we need urgent attention, say knee replacement or by-pass surgery we will not be in the mood / position to argue for release of lump sum in excess of limit.
Really good article!
It is very interesting to see that although investments in the Australian managed funds industry is the largest, investors are not reaping the benefits of the 2005 legislation due to poor investment choices and without proper financial planning. This issue needs to be looked into.
[quote name=”Rod”]Thank you Dr Gupta for being positive about the Financial Planning industry , a refreshing change from the negative press and the rubbish put out by ISN,
thank you[/quote]
Thanks Rod for your comments
It’s indeed disturbing when certain default super balanced funds have in fact about 80% in volatile growth assets. However the media seems to focus on returns also. This is an issue with risk profiling, needs to be looked at. It promotes greed.
Fantastic article….
will be even better when we have support of a new government supporting us as well instead of locking us up in useless red tape
Thank you Dr Gupta for being positive about the Financial Planning industry , a refreshing change from the negative press and the rubbish put out by ISN,
thank you