Adviser attitudes to diversification

The provider asset allocation tables show a massive variation in approach to growth and volatility control at all stages of the savings journey. Approach to risk is a contentious issue for advisers and consultants, with opinions over the extent of equity and other high risk/return asset exposure in the growth phase strongly divided between those backing an all-out pursuit of growth in the belief long-term investors can afford to take the rough with the smooth, and those seeking to smooth the peaks and troughs to avoid member disengagement in the event of a downturn.

The average default fund had an equity exposure of 74.6 per cent, as at 31.3.18, for savers in the growth phase, but individual schemes demonstrate widely varying levels of equity exposure, ranging from 38 per cent to 100 per cent. Some schemes with a low equity exposure also had some exposure to other growth assets, but the overall range of approaches varied considerably.

Consultants and advisers have a wide range of views on approach to the level of risk to be taken through the asset allocation structure of defaults. More than a third of consultants and advisers (35 per cent) believe that for growth-phase investors, 100 per cent of default fund assets should be in equities and other high-risk assets. Almost half (49 per cent) wanted some form of volatility damping, while 16 per cent saw a strong emphasis on controlling volatility as a top priority.