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Philippa Yelland is the editor of IFA Magazine, a Morningstar publication.

ING Direct executive director distribution Lisa Claes says the current asset allocation for many self-managed super fund (SMSF) clients is as high as 50 per cent. This has resulted in a mind-shift of advisers from the cash component of client portfolios being the set-and-forget model, to needing to actively manage their clients' cash positions probably for the first time ever. Much of this pressure is coming from the clients themselves.

"The introduction and subsequent reduction of the government guarantee on bank deposits has also placed the spotlight firmly on where advisers are placing their clients' cash. The need to spread the risk for cash deposits over $250,000 has effectively been legislated, often requiring advisers to seek out suitable institutions beyond their traditional dealer group or platform options," she says.

"By sheer weight of money, term deposits and at-call cash deposits have shifted from being pure retail offerings to genuine investment products. Many advisers have been favouring term deposits over at-call accounts, as they provide good protection against falling interest rates and provide regular and stable income, however there will always remain a desire to keep some liquidity in the portfolio by keeping a percentage in at-call accounts. The lesson we have learned though is that the at-call funds must still be working hard for the client."

Claes is sanguine that equity markets will continue to recover over time and that, eventually, much of the funds sitting on deposits will find their way back into equities and property, but the lesson advisers have learnt is that every bit of the investment portfolio must earn its keep. Even if we return to the days where cash makes up the smallest part of the portfolio, it still requires active management to maximise the return to the client.

The big picture

Altius Asset Management portfolio manager Chris Dickman says the macro inputs into the investment process for fixed-income managers include where official cash rates are heading with the Reserve Bank of Australia (RBA).

"A significant proportion of population depends on interest-rate-bearing investments for considerable components of their income, in particular retirees. There is around $1.63 trillion in bank deposits, plus the domestic managed funds (including fixed-income), reflecting superannuation savings, of $1.475 trillion, which are affected by interest-rate settings," he says.

"This group requires a return over and above cost of living increases. This is why inflation is so important, especially given Australia's aging population. Australians are actually net savers, who earn more from interest than they pay.