A Wealth Insights study conducted in December last year on adviser sentiment has shown advisers are finding the global financial crisis very difficult to manage, with 43 per cent feeling times are either bad or very bad in their roles at the moment.
“Certainly this downturn has really rattled advisers’ attitudes. It’s fair to say even that they’re shell-shocked and fatigued,” Perpetual general manager products and distribution Damian Crowley said.
Many advisers are beginning to question their fundamental beliefs and investment principles, such as modern portfolio theory, as they struggle to find the answers their clients are searching for to help them get though the bear market, he said.
One asset class that has been most baffling and has had the greatest negative effect on advisers and their clients has been fixed income.
“Defensive assets are called fixed income and the feedback we’re getting is it can be quite a misnomer because it can imply some capital stability,” Crowley said.
“What we’ve seen of course is that the capital value of a number of those income funds and some of the high-yielding funds have fallen 20 to 30 per cent and that’s where the biggest shock has been for investors and advisers.”
Most advisers and investors expect the value of shares to fluctuate, but struggle to understand these types of movements in their income funds as they thought they were very defensive and stable, Crowley said.
Selecting quality income funds and realising not all of them are the same is another challenge advisers have had to deal with in this area.
“I think this comes back to the issue that the industry probably didn’t understand the risk in these funds,” Crowley said.
