In February 2013, the SMSF Professionals Association of Australia (SPAA) and Russell Investments issued an annual report titled "Intimate with Self-Managed Superannuation". The Report contains important statistics on the SMSF sector in areas such as trustee preferences and behaviour, investment trends and trustees' perceptions of the SMSF service industry.
The Report's findings highlight:
The Report identifies 3 types of behavioural profiles of SMSF trustees and the Australian population generally. These profiles are key to understanding the range of trustee investment strategies in the SMSF sector and the impact they have on the SMSF sector:
The Report includes data and statistics, summarised below, which confirm the two main drivers for SMSF establishment: control and flexibility.
Many SMSF trustees obtain specialist advice from multiple advisors (such as accountants, planners and stockbrokers), as opposed to a one-stop-shop solution. The Report suggests that, while trustees continue to seek advice from specialists in high demand areas such as tax (45.1%) and compliance (42.7%), 43.7% of trustees prefer a professional service relationship that covers all their needs. The research shows that accountants are increasingly becoming the primary source of overall financial advice for SMSF trustees (22.9%).
Accordingly, those servicing SMSF trustees should consider the need to enhance their SMSF servicing skills to:
Trustees continue to drive investment strategy: 58.8% rely on their own knowledge of investments to influence SMSF investment decisions.
However, trustees increasingly use SMSF specialists when making asset allocation decisions: 22% consulted with specialists in 2012, up from 11% in 2011 and 13.7% in 2010.
The Report discloses trustees' preference for purchasing assets directly, reflecting a greater appetite for transparency and control. A large majority of trustees (77.8%) directly purchase assets such as shares, term deposits and property, while only 24.9% used managed funds.
The Report predicts 2013 to be a year of 'asset migration' where declining interest rates mean a majority of trustees (57.7%) are looking at investments as an alternative to cash, in order to produce returns. According to the Report, trustees have long considered cash and cash-like assets as a strategic asset placement and a legitimate long term asset class. However these types of allocations to cash have worked to 'de-risk' trustee portfolios.
The Report suggests that financial planners need to promote flexible investment solutions, allowing trustees to more readily invest in multiple asset classes (such as international equities), in order to achieve diversification and other desirable investment outcomes. As an example the Report says that only 6% of trustees have allocated assets to international equities.
The Report suggests that trustees have a variety of misconceptions or preconceptions about financial planners due to:
Advisors to trustees of SMSFs have, to date, failed to offer solutions that adequately accommodate longevity risk.
Trustees who are retiring need a different, tailored approach to managing their investments. The Report shows that it is at the retirement stage that trustees are more inclined to switch their investment strategy, with 43.9% having already changed or expecting to change their asset allocation in retirement.
The Report says:
Financial advisors continue to cite regulations and compliance as the two major challenges they face when administering SMSFs and advising SMSF clients.
The changing nature of superannuation legislation has greatly reduced the public's confidence in putting extra funds into superannuation for fear of further regulatory changes. An example is the lowering of concessional contribution caps from $50,000 per annum to $25,000 which:
Another regulatory change which may significantly impact the financial advising space is the introduction of the limited accounting licence. The licence will allow accountants to advise on SMSFs.
As cited earlier, accountants are the primary source of financial advice for trustees, and given that 47.1% of accountants intend to obtain the licence, financial planners may need to prepare for increased competition in providing SMSF specific advice.
The SMSF sector is the fastest growing superannuation sector. Those who are in the business of servicing SMSF trustees should pay close attention to the Report's key findings in order to offer effective client service:
For more information, contact Christina McElwain in the Maddocks Commercial Group on (03) 9288 0555.
 The Report was released at the SPAA National Conference on 13-15 February 2013.
 Report, page 8
 Report, page 2.
 Report, page 9.
 Report, page 4
 Report, page 4.
 Report, page 4.
 Report, page 4.
 Report, page 23.
 Report, page 17.
 Report, page 7.
 Report, page 29.
 Report, page 29
 Report, page 30.
 Report, page 31.
Melissa is a lawyer in the Maddocks Commercial team.
Melissa has been involved in acting for a range of commercial and professional industry clients.
Melissa advises extensively in the following areas:
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