Superannuation investors are too heavily invested in equities and should focus more on outcome-oriented investing, according to an asset consultant.
Russell Investments Australasia chief executive Chris Corneil said the current debate was too simplistic.
“It’s a simplified dual-asset approach, sticking to the baskets of bonds versus shares,” Corneil said.
“But industry and investors should consider a multi-asset approach to include options such as property, infrastructure, global strategic yield, absolute returns strategies and other alternative assets.”
The too-simple shares versus bond debate was occurring “from a rear-vision mirror perspective and is capitulating to the very assets [bonds] that have the greatest risk of downside loss”, he said.
He criticised the benchmark and peer-hugging behaviour of funds. “We can’t slavishly respond to the subscription-based league tables. They’re a very convenient way to measure and the industry has grown up with that. They’re an artefact that’s just convenient,” he said.
It is not a question of more bonds or more equities for investors. The purpose was “to build portfolios and measure performance in completely different ways – multi-asset, both globally and locally”, he said.
Bond yields were low by historic standards, and the risk was that as yields rose, there would be capital depreciation and negative capital return.
MySuper funds should be outcome-oriented, Corneil said, but “they won’t look good on a survey”.
There could be 10 to 12 obvious outcomes, including capital preservation, real growth, targeted income, tax-efficiency, stable long-term growth, liquidity”, he said.
“All these have to be developed through conversations with individuals, based on their age, their wealth, their sophistication,” he said.
Funds needed to know their members, which took time and expense. Russell Investments had done a longitudinal study on its own members through focus groups and had “learned that members were suspicious of what they were getting from funds generally”, Corneil said.
“They wanted people who could help them make decisions. There’s a thirst for knowledge and advice. This population is still left with genuine needs to be serviced,” he said.
Before the survey, the metric for Russell’s contact-centre metric had been the number of calls per minute, but post-survey it became the amount of customer satisfaction.
Investors must look forward not back, and “should be deciding based on what’s likely to happen in the future, rather than reacting to what has occurred in the past”, he said.
“An 18-year-old and a 78-year-old should not be in the same product,” he said.
“People want an option that is capital preservation and tax-efficient. We have to change the perspective of the mums and dads who are the people we all ultimately serve.”
Russell Investments is working with some of Australia’s largest super fund providers on MySuper solutions that best fit investors’ needs.
Corneil agreed with former Super System Review chairman Jeremy Cooper in that super products should indeed consider a member’s age and wealth, but the industry needed to take a step back and start the conversation with the investor’s desired outcomes and build solutions to meet those specific needs.
