Australia’s superannuation industry currently sits at around $1.26 trillion in assets, and is predicted by Deloitte to grow to $6 trillion by 2030 – a level of growth that will likely outstrip the Australian economy.

According to Towers Watson, only 14% of these assets are invested in government and corporate bonds – well below the average in countries such as the US (27%) and Britain (35%).

But with Baby Boomers retiring and seeking capital preservation, many of whom make up large chunks of super fund’s assets, surely we are set to see more conservatism creep in to funds’ asset allocations?

The Boomer phenomenon, coupled with the increase in SG from 9% to 12% and the introduction of MySuper – a low cost, simple option for members that don’t actively choose where to invest their super savings – is likely to lead to a re-evaluation of asset mixes and could go some way to addressing the excessive equity bias that persists among super fund portfolios.

Whether that money remains in Australia, where the market is highly concentrated and the corporate bond market small, or moves offshore in search of investment opportunities, is another question.

Data from the Reserve Bank of Australia suggests Australian corporates had issued $133 billion offshore, over three times as much as the $43 billion issued in Australia, between January and October 2011. Banks and other financial institutions issued $336 billion offshore, nearly twice as much as the $182 billion issued in Australia.

There is widespread recognition of a need for a deeper corporate bond market in Australia, and late last year, Treasurer Wayne Swan announced plans to pump up the domestic listed retail corporate bond market in Australia through means such as streamlining disclosure and liability requirements, and reportedly (although it wasn’t in the discussion paper), a listed market for Commonwealth bonds.

Funds recognise that with consolidation afoot, the bigger they get, the more difficult it becomes not to mimic an index fund – that the Australian share market is heavily concentrated and that it may not be the best place to be for retiring members.

But there’s also peer risk to consider. It’s one thing to recognise the need to diversify away from shares, but who wants to be the one to go against the grain in a market that’s highly competitive, where members (that bother to choose) make their choice of fund based primarily on tangible factors like fees and returns?

Regulatory intervention that mandates a minimum investment in deposits and fixed income securities as a means of forcing diversified asset allocation is obviously not the solution, but the industry is reaching a tipping point where inaction is not an option.

The number of people taking credit for the gravity-defying miracle of Australia’s steady course through the GFC grows steadily everyday – the Howard Government,  the Rudd Government, the Gillard Government, the banking industry – but the reality is that the true credit goes to the Australian people who as a group in October 2007 simply stopped borrowing and started saving, as if someone, somewhere had flicked a switch.

The amount of free cash in the system is now simply staggering – in retail cash alone there is $544 billion, in business cash almost twice as much – as near as anyone can tell there is about $1.4 trillion of spending paused in the system.

The reason for this is clear. Australian’s are frightened to spend; they don’t believe the Government when they are told that we are going to be fine and there is a pipeline of new projects that will magically pump money into the Australian economy.

This kind of pause in investment isn’t without consequences. Housing starts in Australia – the bellwether of so many parts of our economy and economic sentiment – are at a 15 year low, retailing is reinventing itself and fast growth industries like financial services are becoming yield plays.

Australian investors now seem to have divided themselves into two separate camps – those who have emerged from the GFC stronger and more determined to become smarter and better investors and those who, even five years after the GFC moved through the world’s economies like a thief in the night, cannot abide the idea of returning to any investment other than cash.

At CoreData we have been struck by how these people were suffering from symptoms which are really similar to Post Traumatic Stress Disorder (PTSD).

This disorder, first noticed and recorded among French soldiers in the Napoleonic Wars, is usually thought of as something that happens in people who have faced battle. The symptoms, which are listed as general anxiety when facing the issues, hyper-vigilance, acute stress and flashbacks, have been happening to a whole raft of Australian investors when they think about the GFC.

What this really means is that to free up the cash which is stuck in the Australian investment system, for investors to once again embrace the idea of shares, and to embrace the idea of advice then the conversation that planners are having with them is going to need to change.

At the moment most planners have been skilled at talking about structures, about yields, about tax planning and reporting, about the efficiency of simply staying in the market and that may be a conversation that is lost on the 400,000 Australians who have now collectively got more than $1 trillion stuck in cash. Now, the conversation needs to be about what they fear and the small steps that they can take to overcome these fears.

There is more than 100 years of good research on Post Traumatic Stress and it tracks pretty closely with the fears of the Australians who think that they can no longer invest and the reality is pretty promising.

For those who make it through the stress,  they return strong and more dedicated in the places that they were broken – and that’s a challenge for the Australian financial planning, private banking and advice industry to embrace.

The longer that we avoid it, the harder it’s going to be to recover from.

An unhappy customer may choose to stay with a bank despite a sense of poor service and low levels of satisfaction, meanwhile a seemingly happy customer may choose to jump ship to a competing institution despite exhibiting a strong sense of satisfaction.

New UK research found this to be the case as one in two (52%) consumers with a relatively high level of trust in their provider, are still considering switching to another provider.

The findings stem from more than 14,000 UK banking customers in an annual CoreData Research UK/Moneywise study of customer service among Britain’s financial services companies.

Another conclusion that has come to light is that individuals can no longer be persuaded by a friend’s recommendation and instead a more substantial offer from another provider is the more likely driver to making them switch.

Regardless of the switching tendencies among some consumers, it’s interesting that many often don’t switch even despite repeated poor service.

Consumer inertia has been an issue within the UK financial services industry for some time now; and the recent credit crisis seems to have merely added to this stagnant environment.

Low consumer trust in the banking system one assumes would manifest in pushing individuals to evaluate their current service providers and if need be, switch.

Yet only around a tenth (13%) of current account holders is considering switching to another provider.

Whatever the reason to stay with one’s current provider, be it apathy, disillusionment or even low satisfaction, it is clear there is limited willingness for most people to switch.

The economic theory relies on the assumption that people vote with their feet – Charles Tiebout was the main advocator of this theory through the Tiebout model. He talked of individuals moving – in this case switching providers – in search of maximum utility.

The Independent Banking Commission has been issuing directives for the retail banking market to make it easier for consumers to switch.

A finding from this study, that only a third (33%) of consumers would switch as a result of continued bad customer service, suggests the problem does not necessarily rest with the providers but also with consumers too.

Luckily, JPMorgan is a big enough institution to wear these losses, with a few golden handshakes and an investment team shuffle.

However, if the same investment strategy had been taken by a number of big players at the same time, as was the case when many people in the market held collateralised debt obligations on US subprime housing, we would be an entirely different scenario.

In reviewing the investment strategy that led to such a colossal loss, burningpants has to wonder; are our memories that short, or are we destined to continue repeating our past mistakes?

At the centre of the scandal is the chief investment office, based in London, where JPMorgan takes care of its hedging activity. The chief investment office had been tasked with reducing the bank’s exposure to “high yield” or junk bonds.

High yield bonds are riskier in nature than investment grade corporate bonds, and JPMorgan had come to own a large amount of them, so needed to get some insurance against the risk associated with these, as if they were all to go bad at the same time then there could have been significant consequences for the bank.

So they sought an investment opportunity that would be expected to do well in the event of high yield bonds doing badly; the answer? High yield bonds.

However, there are more ways than one to skin a cat, and in order to cut their risk on junk bonds JPMorgan’s chief investment office looked to bring the infamous credit default swaps (CDS) into the equation.

This was roughly the bet that JPMorgan was taking.  They had identified that investment grade bonds were doing particularly well, with defaults looking very unlikely.  They had then looked at their large holdings of high yield debt and decided that the best way to hedge out the risk from their high yield assets was to go short on investment grade CDS’s. They had identified an investment grade index that they could make a bet that investment grade bond CDS’s would fall in value on.

However, the size of the bet that JPMorgan took was so big that other players in the market began to take notice.  They looked at the underlying companies on the investment grade index that JPMorgan was shorting CDS’s, saw that some of these didn’t look like companies that had zero chance of defaulting, and decided to take the other side of the bet that the CDS’s would increase in value. A number of hedge funds bought the CDS’s from JPMorgan, and once default became more likely for some of the underlying companies in the index, the value of the CDS’s increased, and JPMorgan began to lose money.

Now, this would have been fine if JPMorgan had only made a small bet, as investment managers lose money all the time on strategies that don’t pay off.  However, through the use of complex CDS’s, and leverage, JPMorgan’s entire position approached close to $100 billion, so only a small loss percentage wise, was going to add up to a big loss dollar wise.

Derivatives allow for markets to function properly, by shifting risk.  However, when they are bunched together in large bets the consequences can be overwhelming.

Let’s not forget what got us into the global financial crisis in the first place.

With impending auto-enrolment regulatory change set to force semi-mandatory saving (that sounds contradictory!) via the workplace for lower income employees, groups are looking to bolt on other savings options beyond pensions to allow a seemingly one-stop-shop for individuals.

These packaged offerings are typically referred to as Corporate Platforms.

Corporate platforms, which allow employees to choose their own investments, pension products and other benefits through their employer, have been hailed as part of the solution to improve lacklustre saving rates across the UK.

But will employees use this new technology or shun it at the outset?

The corporate arena is not a simple yellow brick road with a pension-Emerald City at the end and critics of these workplace administrative tools claim employers are hesitant to take the plunge and sign up for such services.

However, regardless of the criticism, one cannot deny that going forward, the corporate arena is bound to be a key distribution battleground for pension and investment product providers. Despite the HR manager take on the matter being heard, not much has been voiced from the employees’ point of view.

Given these individuals will be using, or not as it may happen, a corporate platform, it’s worthwhile understanding their attitudes and opinions on the matter.

The CoreData Workplace Savings and Corporate Platforms report reveals that eagerness to use and engage with a corporate platform appears to be more likely than not. Almost half of employees (46.1%) say they would use or definitely use a corporate platform were their employer to introduce one.

There are, of course, blockers and inhibitors that will keep employees back from using a corporate platform; the foremost among these being cost, followed closely by the prospect of too much jargon.

Below are some of the other reasons individuals gave for their reluctance.

Despite some resistance, the eagerness to use corporate platforms is a significant boon to the burgeoning world of corporate offerings, as the appetite for making use of a corporate platform appears to be quite healthy.

Of course one needs to take into account that the follow-through, that is, whether employees will actually use a platform once it is set up, cannot be guaranteed.

The research finds that employees within five specific industries are more amenable to the notion of a corporate platform and individuals in these sectors are more willing than their counterparts to use such a service.

These industries include human resources, insurance and oil and gas sectors. More than 60% of people working in these three trades say they would be willing to use a corporate platform. The oil and gas sector is home to the most enthusiastic individuals.

Though, in aggregate, more people working in HR say they would use a corporate platform, a greater number of employees within oil and gas say they would definitely use one, were it made available to them.

The recruitment war among licensees continues, as dealer groups seek to growth their networks both organically and via acquisition.

But how much is real, and what’s just noise? Has the natural attrition rate of Australia’s licensees really changed, or is it just that industry consolidation has put the spotlight on retention?

CoreData’s Licensee Research 2012 sought to understand the impact of the recruitment war on financial adviser intention in addition to assessing the satisfaction of advisers with their licensee’s services.

The study, which canvassed the views of 1,165 Australian financial advisers across 40 dealer groups, found that more than half of advisers have been approached by one or more licensees in the last 12 months asking them to switch licensee (54.1%).

The most common carrots being dangled include attractive remuneration packages, increased and improved support across the practice, and client lead generation.

Despite the offers being put on the table, switching intention among advisers in the industry remains relatively stable, with one in seven advisers (13.8%) likely to switch licensee in the next 12 months (based on those who answered between 7 and 10 on a 0-10 scale), compared to 14.5% last year.

Likewise, one in five advisers (19.8%) is likely to switch in the next five years, on par with 2011 (20.9%).

The short term propensity for advisers to set up their own AFSL continues to decline in 2012, to 19.0% from 24.8% last year and 23.9% in 2010 – potentially a reflection of the evolving regulatory environment for advisers, which is making life more difficult for independent advisers.

This year, AXA Financial Planning has been named CoreData Licensee of the Year, having achieved the highest adviser satisfaction levels relative to its industry peers.

Detailed findings, including category winners, will be published in the June edition of Professional Planner.

For more information on the Licensee Research, contact CoreData on 02 9376 9600.