On the face of it, a drop in the number of self-managed super funds setup over the past two years may seem a little puzzling given the $600-billion sector’s immense popularity.
The 2015 Self Managed Super Fund Report – published by Vanguard and specialist researcher Investment Trends – records that 50,000 SMSFs were established in the two years to March this year. This is 15,000 fewer than the 65,000 established in the two proceeding years.
The lower setup figures do not signal that self-managed super is losing some of its appeal; far from it.
There is a straightforward explanation that is not directly related to SMSFs but a reflection of the overall state of investment markets.
Investment Trends has long commented on how SMSF establishment figures typically dip when investment returns from diversified portfolios have been relatively strong and the big APRA-regulated super funds have been producing solid returns.
And when investment markets have been weak and the large super funds have been recording low returns, the opposite usually applies with more people becoming convinced they can produce better returns themselves with their own self-managed funds.
Despite the higher volatility on investment markets of late, investment returns have been strong over the past few years.
In the three years to June 30, SuperRatings reports that the median large super fund with a balanced portfolio in the accumulation phase returned an annualised 12.3 per cent. (See Investors behaving normally, Smart Investing, July 21.)
The 25,296 SMSFs established in the 12 months to March 2015 was the lowest number since setup numbers spiked at 38,785 in the 12 months to March 2008 during the depths of the GFC. It could be said that SMSF establishment numbers have now settled at a more normal rate.
A survey for the 2015 Self Managed Super Fund Report found that markedly fewer SMSF trustees setup an SMSF over the past year in response to the perceived unsatisfactory performance of their existing super funds.
Not surprisingly, the most common reason by far why members of large funds want to setup an SMSF in the future, according to the 2015 report, is their desire to gain "more control of my investments".
Other main reasons given by SMSF trustees for establishing their own fund over the past two years include: following advice from my accountant, wanting to choose direct shares and saving money on fees. Some of the less-common reasons given include: wanting to invest in direct property through super, seeking more tax efficiency and taking advice from a friend with an SMSF.
There would usually be multiple reasons or motivations for members of large super funds to switch to a self-managed fund, with some reasons being stronger than others. (Investment Trends’ survey provided for multiple answers.)
It would be interesting for SMSF members to ask themselves why they set up their SMSFs in the first place. And then to question whether their funds are providing what they had initially been seeking.
Such questioning may help SMSF members think about what improvements should be made to their fund – concerning such issues as asset allocation, investment choice, fees and, significantly, whether more professional assistance is needed.
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Robin Bowerman is Head of Market Strategy and Communication, Vanguard Australia. As a renowned market commentator and editor Robin has spent more than two decades writing about all things investment. |
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