SMSF Trustee Profiles
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:
- Controllers - make up 20% of the population and 30% of the trustees surveyed in the Report. These trustees like to independently manage their assets;
- Coach Seekers - make up about 30% of the population and around 50% of the trustees surveyed in the Report. These trustees like to manage their assets themselves but are inclined to seek information and advice to support their investment decisions; and
- Outsourcers - make up about 50% of the population and 20% of the trustees surveyed in this Report. These trustees would rather have someone else manage their assets and finances. This group are the least likely to have an SMSF due to the well-entrenched view that an SMSF is a 'do it yourself' option.
The Report's Key Findings
The Report includes data and statistics, summarised below, which confirm the two main drivers for SMSF establishment: control and flexibility.
Trustees prefer full spectrum SMSF services
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:
- cover a broader range of services; and
- in so doing, meet and capitalise on the increasing demand for specialist-type advice.
Trustee investment behaviour
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.
Flexible asset allocation
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.
Misconceptions about the role of financial planners
The Report suggests that trustees have a variety of misconceptions or preconceptions about financial planners due to:
- a misunderstanding of their role;
- a perceived lack of clarity surrounding fees charged and services provided; and
- a belief that financial planners generally only give broad financial advice and 'push products', particularly in cases where they are a financial planner aligned with a particular large institution. Given those misconceptions, financial planners need to establish themselves as experts in the SMSF sector capable of providing specialist advice.
Tailored investment solutions: managing longevity risk
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:
- 32.7% of trustees are more likely to engage a financial planner for investment solutions; and
- only 12.1% of trustees would turn to accountants for this type of investment advice.
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:
- makes it harder for members to save adequately for retirement; and
- makes it harder for SMSFs to make contributions to help pay down debt in the SMSF.
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.
Key Messages for the SMSF Sector
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:
- Specialise: assess your service delivery and whether you provide specialist advice that adequately addresses the complex needs of SMSF clients.
- Clarity: explain your role in providing SMSF specific advice so clients can fully understand the nature of your service and how you can best accommodate their investment needs.
- Fees: clearly communicate to your client how fees are charged for your services.
- Asset allocation: educate trustees about current adaptive asset allocation strategies and the benefits of investing in multiple asset classes.
- Tailored solutions: identify your clients' investment phase and tailor specific investment strategies that best achieve their retirement goals.
More Information from Maddocks
For more information, contact Christina McElwain in the Maddocks Commercial Group on (03) 9288 0555.
Order SMSF related document packages
- Set up an SMSF
- Update an SMSF deed
- Set up an SMSF pension
- Arrange SMSF borrowing documents:
- Set up an SMSF corporate trustee
- SMSF Death Benefit Nomination - binding or non binding
- SMSF Death Benefit Agreement - binding and permanent
- Actuarial Certificate
 The Report was released at the SPAA National Conference on 13-15 February 2013.
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