Inconsistency and confusion around asset class definitions is one of the industry’s biggest issues according to Lonsec head of investment consulting, Veronica Klaus.
Speaking on a panel at the Professional Planner Researcher Forum in Sydney this week, Klaus said the way assets are sorted into growth, defensive etc., is confusing and ultimately makes it hard for financial advisers to service their clients.
“It is something that’s causing a lot of grief, you’ve got every single group out there defining these assets very differently,” Klaus said. “It makes it very confusing to offer appropriate advice to clients and get real clarity on what their risks are.”
Speaking to Professional Planner on the sidelines of the event, Klaus explained that the superannuation funds themselves aren’t to blame for the problem.
“On an individual level each super fund is not doing anything wrong by defining their assets in a way that best suits their own fund,” she said. “Whether it be the average age of members, liquidity of the fund as for far as the best inflows, or a whole host of very specific objectives around their own funds.”
The lack of transparency is often for valid reasons, she said. The priority of funds is to look after their own unique member base, and a host of other variables need to be taken into consideration during the asset classification process.
“Because of this there’s obviously huge differences across the industry as to how a lot of these assets are defined and that has led to a lot of confusion, especially for the financial planners who are at the coalface.”
Klaus was joined on the panel by Chris Lioutas from Insight Investment Consultants and Innova Asset Management’s Dan Miles to discuss the natural advantages large superannuation funds have in terms of what they’re able to invest in, and how those strategies can be replicated. The session was chaired by independent investment strategist Giselle Roux.
Klaus explained that the issue of transparency is a central debate in investment management, particularly within superannuation. “Up until recently it’s been really difficult to get a really good understanding of how much exposure super funds have to illiquid assets and different types of alternatives and how they class them,” she said.
Innova’s Miles sympathised with Klaus, saying he “hated the bifurcation of defensive and growth names”.
Klaus noted that efforts had been made in the past to unravel the issue to no avail.
“ASFA (Association of Superannuation Funds Australia) released a paper back in 2008 where they couldn’t come to a decision on how you define these,” she said.
