Only one in five advisers believe their SMSF clients hold well-diversified portfolios, highlighting a significant portfolio construction opportunity, new industry research released today has revealed.
The BT Financial Group (BTFG) and SMSF Association “2018 SMSF Insights Paper”, based on research conducted by Investment Trends, revealed 78 per cent of SMSF advisers cited diversification as the number one priority when selecting investments.
This was followed by 48 per cent citing capital growth as their priority when it came to investments, 45 per cent indicating capital preservation, 42 per cent stating liquidity and 41 per cent choosing production costs.
The paper said while advisers largely agreed (97 per cent) it was important for their SMSF clients to be well diversified across different investment types, it was not reflected in all SMSF client portfolios.
Further, while advisers universally agreed on the importance of diversification, 62 per cent find it difficult to diversify their SMSF client portfolios, compared to their non-SMSF client portfolios.
The majority of advisers also agreed managed funds form the bedrock foundation of a diversified portfolio, according to the research.
Close to nine in 10 (89 per cent) consider a portfolio of managed funds, direct shares and property to be diversified, while 87 per cent believe instruments across four or more asset classes is ideal.
While managed funds and exchange-traded funds (ETF) can both provide access to a broad range of assets, under half of SMSF advisers (47 per cent) said an ETF-only portfolio is sufficiently diversified.
In addition, 64 per cent of advisers recognise a portfolio of 30 individual stocks may not provide sufficient diversification.
The research revealed close to nine in 10 SMSF advisers (89 per cent) believe product manufacturers and service providers can help them achieve their desired level of diversification in SMSF portfolios.
The most popular ways cited to achieve this are providing illustrative tools that demonstrate the benefits of diversification (56 per cent) and the potential risks of inadequate diversification (49 per cent).
BTFG head of adviser distribution Jo Moxey said advisers regard their ability to offer well-diversified portfolio construction as a key part of their value proposition, and SMSF specialists can provide trustees with critical guidance on the benefits of diversification and the risks of getting it wrong.
SMSF Association chief executive John Maroney said the evolution of SMSFs is continuing, with close to 2000 new funds being established each month, and 154,050 trustees projected to move into retirement within five years.
“Now, more than ever, advisers of SMSFs have a significant role in helping trustees to meet their legal obligations, navigate regulatory change and embrace the importance of a diversified portfolio, as well as understand what constitutes diversification,” Maroney said.
The research paper is part of a four-year partnership between BTFG and the SMSF Association to support trustee and adviser education, the value of advice and collaboration to optimise Australian SMSF retirement outcomes.
The paper is based on the responses to an online survey from 163 advisers comprised of 110 SMSF generalists, those with one to 20 SMSF clients, and 53 SMSF specialists, those with more than 20 SMSF clients.
The survey was conducted between February and March.
