Advisers should not always look to cash allocations held by fund managers to determine the appropriate level of defensive assets needed in a retail investor's portfolio, the chief executive of a wealth management firm has told a group of financial planners.
In particular advisers need to be aware of effective portfolio diversification in times where markets are falling.
"It's all good and well to say we're going to be really diversified but as we saw in the last six months all risky assets get correlated in a crisis so unless you have some cash or something that is really defensive, portfolios can be damaged and retail investors can make the wrong decisions as a result," BT Investment Management chief executive Dirk Morris said.
Furthermore using the rule of thumb that equities outperform cash in the long-term may not work in every situation, according to Morris.
"In the institutional world where the client is truly well-diversified, and you're hiring an Australian equities manager to run Australian equities then it makes no sense for them to be trying to call whether to go to 100 per cent cash or 50 per cent cash," Morris said.
"However there are a lot of retail clients out there that aren't in institutional portfolios that have a global macro sleeve or overlay in place and I do think the industry.needs to rethink a little bit [about] who is the final fiduciary for the overall portfolio versus cash."
