Advisers urged to hold nerve

Someof Australia’s leading investment specialists have come together to call on financial planners to hold their nerve and convince their clients to stay in Australian and international equity investments, despite continuing uncertainty in the world’s share markets.

The inaugural sitting of the Asset Allocation Board, a newly formed forum of disparate fund managers, concluded last week with a united message to financial advisers that retreat from equity markets at this point would be a dire tactical mistake.

The board, chaired by former Deutsche Bank economist Don Stammer, held a full day of deliberations last week, before announcing its preferred tactical asset allocation for financial planners to negotiate what is still an overtly volatile market.

After what Stammer says was a healthy exchange of views, the board agreed that financial planners should recommend their clients maintain a benchmark weighting to Australian and international equity markets, 41 and 22 per cent of their portfolio respectively for a typical investor.

Stammer says the board, which also includes Perennial Investment Partners managing director Ian Macoun, Alliance Capital Management chief executive Michael Bargholz, Investec Private Advisers financial planner Robert Lipman and Sagitta head of global asset allocation Callum Burns, laboured over the decision given the current uncertainty in equity markets.

However, the board has also left the door open for an even greater exposure to equities, suggesting advisers recommend their clients pull money out of fixed interest investments to double their cash reserves — from five to 10 per cent of a typical portfolio — in order to plunge into share markets should the world’s economies take a turn for the better.

Overall, the board recommended advisers push for a tactical tilt towards growth assets, while warning advisers could face a hostile reaction from their clients, many of whom have already seen their portfolios deteriorate as a direct result of the upheaval in equity markets.

“The average person out there has a certain tolerance that lasts a certain amount of time, and that usually breaks at the bottom of the market. That is one of the biggest tragedies, that people bear all that pain only to get out at the wrong time,” Perennial’s Macoun says.

Macoun says advisers would have to prove their worth by convincing clients to hold their nerve.