The advice and investment week in focus - 1st November

1) Back when the Financial Planning Association and the Association of Financial Advisers were two separate entities, the advice industry was in a very different place. In 2024, as the newly merged Financial Advice Association Australia resets its strategic priorities, it follows that the group's drivers are similarly changed. Members still come first, chief executive Sarah Abood explained on a webinar to update members this week. That has always been the case at both the FPA and the AFA. Advocacy has also been retained as a strategic priority. No change there, as representing the industry and fighting for the profession's best interests among politicians and other stakeholders has always been a firm value pillar for the association. It's what has changed, however, that's a topical reflection of the industry today. Gone is the FPA's former focus on consumers and the AFA's old focus for professionalism. In their stead, the new FAAA has reacted to declining advice numbers by putting growth on a pedestal and added it as an integral third pillar.

2) Client books for US advisers are swelling as investors increasingly understand the benefits of holistic financial planning according to new data out of US advice consultants Cerulli Associates. Fifty-three per cent of US investors now believe that having a written financial plan is important, up from just 41 per cent back in 2014, with financial planning practices that incorporate comprehensive wealth management and planning services seeing longer lasting client relationships, an increase in "upmarket growth" and wealthier clients onboarding. Cerulli's Financial Planning: Fueling Client and Business Growth report details how the increased demand is being driven by a confluence of factors, including greater market volatility and the increased complexity of investment vehicles. Worth noting, too, is that traditional employer pensions are on the decline in the US as the shift to self-funded retirement continues.

3) The past few years have been problematic for bonds, with rising interest rates hampering yields and their traditional role of diversifier being challenged by intermittent correlation with equities. But a confluence of factors are mitigating those concerns in the back half of 2024, and bonds are poised to shine in the near term according to a recent whitepaper from fixed income specialists Capital Group. As ever, the rate cycle in the US has a significant bearing on the state of the bond market. The US Fed has already signalled that the peak has been reached and with a 50 basis point cut already in the books, its primary concern is ensuring a soft landing for the economy after the emergence of soft employment figures. Rate cuts in Australia lag, but will follow in 2025. With concern about a slowdown in growth and consequent rate cuts, Capital Group notes, duration often changes from a potential drag on portfolios to a positive price contributor. Past rate cycles have demonstrated this repeatedly. Looking back at every period of sustained rate cuts of the last 40 years, we found that, on average,? investment grade credit returned10 per cent in the three years after the last rate hike in a cycle,” the report states.

4) Profit-to-member super funds are all about simplicity: for example, creating a single default investment option that’s supposed to work for the vast majority of members. That simplicity almost constitutes an article of faith, with many super funds still eschewing more complex products even as life expectancy changes and younger members get more comfortable with risk. But lifecycle investment strategies – which adjust asset allocation based on the age of members – have now entered the industry mainstream, and for good reason:?members get the right level of risk for their age and wind up with more money at retirement, while the fund winds up with more FUM and reduces its reliance on external asset consultants and key persons like the CIO. “It still astounds me that large super funds have a single balanced fund that they think works for everybody,” Bellmont Securities CIO Michael Block told the IBR Asset Allocation Forum on Monday. “I’m 62 years old with a large balance; my daughter is 33 years old and a teacher with a very small balance, and with something like a 30-40-50 year investment horizon. So why on earth would you give us the same investment strategy?”

5) Rarely has the market required so little to be so optimistic. We’re now in the second year in a row of very strong equities performance – ?driven largely by sentiment based re-rating of earnings expectations. The question for Abrie Pretorius, portfolio manager for Ninety One’s US$22.3 billion global franchise strategy, is how sustainable earnings growth really is from here. “Over the last 12 months, earnings growth has been about 11 per cent, but it looks like the market expects earnings growth to accelerate from here if you just look at consensus expectations,” Pretorius tells ISN on a visit to Australia following the launch of Ninety One’s global franchise wholesale fund down under. “But I think it’s probably quite a bit harder to deliver accelerating earnings growth when inflation is running in the low single digits, compared to the last two years when it’s been high single digits. It looks like the market might be a little bit optimistic and priced to perfection.”