Financial Planning in a Volatile Economic Environment

Quick Research findings Topping the list of concerns is the rising price of consumer essentials, such as groceries and petrol (91%). 75% cite rising interest rates; 69% the threat of a recession and its impact on job security; 52% uncertainty in property prices; and 47% share market volatility.

Of those with a mortgage, 88% are concerned about the impact of rising interest rates on their personal financial security. This compares with 69% for those without a mortgage.

2. Riding out volatile share markets

Australians who use financial planners are more likely to sit tight and ride out volatility in the share markets (77%), even though their level of concern is somewhat higher than for those who do not use a financial planner (67%). This is probably due to their greater awareness of the markets and the economy, and larger holdings of shares.

a. Australians with an ongoing relationship with a financial planner are more likely to have bought shares (10%) as a result of share market volatility. This compares with only 2% of those who have never used a financial planner.

b. 67% of those with ongoing relationships and 58% of those with occasional relationships with financial planners are concerned about share market volatility compared with an average of 52% and 39% for those who do not use financial planners

c. People with an ongoing relationship with financial planners are more than twice as likely to hold shares or be invested in managed funds (outside of superannuation than those who have never used a planner (66% and 64% compared with 31% and 16% respectively)

d. Overall, 9 out of 10 (89%) Australians have some form of investment. The eight main types are managed superannuation (55%), shares (42%), own home outright (36%), own home with mortgage (31%), managing funds (29%), DIY super (24%), term deposits (22%) and investment property (17%)

e. 3 out of 4 Australians (75%) who have exposure to equity (direct or through superannuation) have decided to sit tight and ride out the volatility in the share market. Of those remaining, 7% have moved to safer asset classes like cash or bonds, 5% have sold shares and 4% have bought shares.

f. Of those with exposure to equities, 4 out of 5 (80%) between the ages of 35 and 49 are willing to ride out market volatility. Investors up to the age of 24 are least risk tolerant (63% willing to ride out market volatility) while other age groups fall between the two extremes (73% average).

g. Levels of concern about volatility are highest among those with direct investment in shares or managed funds (63%) but are also high among people with DIY super and other super (52.5%).

3. Use of financial planners

Three in 10 Australians currently use a financial planner. Of these, 13% have an ongoing relationship and 17% use a financial planner occasionally, when there is something to discuss.

In 2007, Galaxy research for the FPA found that 22% had used a financial planner in the last 12 months and a further 13% had done so in the last five years. The numbers are not directly comparable with 2008 but suggest a rise in the number of people currently using a financial planner.

Some other findings about use of financial planners were:

a. Australians with a close relationship to a financial planner are more likely to have diverse investments. Those with an ongoing relationship hold, on average, 3.8 investment classes; the number drops to 3.3 for those with an occasional relationship; 3.0 for those who no longer use a financial planner and 2.1 classes for people who have never used a planner.

b. Regular use of financial planners increases with age, with 56% of those who make 'ongoing' use of a financial planner aged 55 years and older

c. One in 3 of those who have never used a planner are under 30 years (33%)

d. Ongoing and occasional users of planners have a higher income. 47% of ongoing users and 46% of occasional users earn $70,000 and over, compared with 29% of those who have never used a planner

The Financial Planning Association of Australia (FPA) is the peak professional body for Australia's financial planners, representing approximately 12,000 individuals and businesses.