‘Hard to get the timing right’: Super funds urge members to seek advice

There has been a slowdown in the volatility of investment markets following US President Donald Trump’s decision to pause the higher rate of tariffs on every trading partner outside of China, but there’s no telling how long that could last.

Every morning there is a chance of waking up to news of a Trump announcement that will shake things one way or another.

When it comes to superannuation, members need to be cautious they aren’t making short-term moves at the detriment of long-term returns, with UniSuper chief investment officer (CIO) John Pearce warning switching often comes “at the wrong time”.

“What we’ve seen time and again through history during a crisis is that members tend to switch at the wrong time. It’s very hard to get this timing right,” Pearce said.

“Indeed, many members do actually switch out of risky assets at the right time but then they stay in defensive assets, and they don’t get that bounceback. We know that markets, time and again, they do bounce back, and they can bounce back very sharply.

“If you miss that, you could pretty much crystallise a lot of losses, because as I said, it’s difficult to get that timing right. So, the message to our members, particularly our younger members in accumulation phase that are able to ride out volatility, it’s a matter of just staying the course. They are in this for the long haul. This is not going to be the last pullback in share markets that they’re going to see.”

When it comes to members that are closer to retirement, the CIO said the volatility is a “painful experience”, adding that he hopes they are “getting advice from the right people”.

Similarly, Australian Retirement Trust head of advice Anne Fuchs told members who are worried about recovering their losses they “need to go and get some financial advice”.

“You wouldn’t sell your house at the bottom of a property market slump unless you really had to. When you move to cash, you’re locking in losses, effectively,” Fuchs said.

“If you don’t need to do that, you wouldn’t do that. That’s why financial advice is really important.”

ART senior manager of education, Joshua van Gestel, added that getting advice can help remove the more emotional aspects from investment decisions.

“Where people are investing emotionally and they’re making investment decisions based on how they’re feeling – advice is from someone who’s removed from that, who can help you actually think what you should be doing,” he said.

According to the fund’s chief economist, Brian Parker, the difference between advised and unadvised member behaviour was evident during the COVID-19 pandemic, which saw a “relatively small” number of members moving large allocations out of balanced and growth options into cash.

“Those members tended to have two things in common, or at least one of these things in common. One is they weren’t getting advice. Our advised members were much, much less likely to do something unfortunate at that time,” Parker said.

“The second thing is that our members who are in the default option, the life cycle option, were much less likely to do something.”

‘It’s a very natural response’

While super funds have sought to reassure members and avoid them making costly decisions, Aware Super CIO Damian Graham said he understood the compunction to act when things appear grim.

“It’s very natural for people to be concerned when they’re reading headlines and seeing big market movements. It’s a very natural response,” Graham said.

“It’s interesting to us that it does underpin the power of advice. We find that a very small number of our advised members actually change their investment strategy.

“A slightly higher number of members that don’t get advice will change their strategy, so we think it underpins a power of advice.”

According to the Aware CIO, the reaction of members to particularly large swings is “very interesting”, as he believes members do generally understand how hard is to “time these type of decisions”.

“We encourage them not to change their strategy even when it’s highly volatile for the reasons I mentioned before of how impactful and how damaging it can be, but it’s totally natural and we do try to provide the confidence that these events, while uncomfortable, are not unusual,” Graham added.

“They happen every few years on average and even heightened voluntarily like we’ve seen, it’s not unheard of, it’s not something we haven’t seen before. So, we encourage people to stay as calm as possible and not overreact.

“I do think the messages get through, but not everyone. There’ll always be some people that want to change their strategy, but we do encourage that they get advice or education and information if they are thinking about it.”