The double-punch of regulatory uncertainty financial market volatility sees the majority of self-managed super trustees sidelined into cash assets, a study shows.

Self-managed superannuation fund (SMSF) trustees have growing concerns on the impact of regulation and ongoing global volatility on their retirement plans, with a growing number increasing cash reserves, according to an annual survey conducted by AMP Capital.

The study of 700 investors--conducted by Investment Trends on behalf of AMP--shows 65 per cent of SMSF trustees holding cash in reserve due to global volatility concerns. On average, $110,000 in cash per SMSF is being held, that could otherwise be invested in growth assets.

Australian regulatory reforms to superannuation was another specific concerns identified by 70 per cent of those surveyed.

"With many investors increasing the amount of money held in cash as a risk-reducing strategy…trustees could be at risk of not meeting their retirement goals,” says Tim Keegan, AMP Capital.

While the number of SMSF trustees seeking professional financial advice increased 6 per cent in 2017, 63 per cent of trustees are still open to receiving further advice. One-third of respondents identified the development a retirement strategy as a key area in which they require advice, while 28 per cent nominated income generation, and 22 per cent investment selection.

“In a period of heightened regulatory change, it’s clear that many SMSF trustees are looking for help to set up the right portfolio to reduce risk while still supporting their retirement goals. It’s an opportunity for advisers to share their expertise with new and existing SMSF clients,” Keegan says.

The research also revealed some slightly worrying interpretations of diversification, a fundamental investing concept which, along with a long-term focus, is a core focus of Morningstar research.

Nearly half of trustees surveyed consider a portfolio with 20 individual equity stocks to be well diversified-- and 53 per cent say a portfolio with a mix of domestic and global equities is well diversified.

Only 35 per cent of trustees believe a portfolio invested across four different asset classes is diversified.

These findings support a commonly-cited concern about investment bias among Australian investors. While home bias is a natural response for investors, evident in every market around the globe, commentators have long suggested Australians have a greater propensity to favour a narrow range of domestically-listed sectors and companies.

“The research reveals a potential concentration risk in equities for SMSF trustees. It’s important to not only consider diversification in the equities held but also across different asset classes, including infrastructure and property for example.

“The research showed 22 per cent of trustees intend to invest in managed funds over the next 12 months, with one of the main reasons to increase portfolio diversification. There’s an opportunity for advisers to discuss appropriate unlisted managed funds and active exchange traded funds available in the market to support trustees achieve this objective," Keegan says.

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Glenn Freeman is senior editor, Morningstar Australia.

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