SMSF Association Media Release
Key superannuation indicators highlighted a thriving SMSF sector that had established a firm foundation for strong growth, SMSF Association CEO Peter Burgess told delegates attending its National Conference Thought Leadership Breakfast in Melbourne today.
“Establishment numbers are up, especially among younger people, the sector has passed the $1 trillion milestone, and the latest research by the University of Adelaide shows SMSFs comfortably outperformed APRA-regulated funds in the five years to 30 June 2023.
“It’s not just the raw numbers, as encouraging as they are. Those traditional hallmarks of our sector, flexibility and control, are asserting themselves as evidenced by those nearing or in early retirement wanting a more tailored superannuation experience. In addition, technology is making it easier to set up and manage a fund, helping explain their growing appeal to a younger demographic.”
Burgess, who was joined on the Breakfast session panel by Heffron Managing Director Meg Heffron, Financial Advice Association Australia CEO Sarah Abood, and Stake CEO Jon Howie, were addressing the topic Momentum Matters: Sustaining success in the SMSF sector beyond $1 trillion. The session was hosted by Class and moderated by Class CEO Tim Steele.
Heffron said while establishment numbers were a good indicator of the sector’s heath, so too were wind-ups.
“A high wind-up rate for newly established funds suggests buyer remorse or scams. But the trend in recent years has been falling wind-up rates and the age of the fund at wind-up time has been getting older.
“While it will be several years before we have reliable statistics because there’s always a lag regarding wind-ups but based on what the numbers are telling us now, they’re trending down despite the growth in funds.”
She concurred with Burgess on being positive about the sector’s ongoing growth, noting that most if it was coming directly from trustees.
“With advisers reluctant to recommend and accountants locked out, I suspect trustees are doing their own research and finding their own way to an SMSF.
“While I would always say that the best approach for an SMSF to optimise their superannuation is in partnership with an adviser, I don’t think we should underestimate the research some people do before concluding an SMSF is their best option and then bringing in an adviser at a later stage.”
Abood stressed the critical role that advisers played in the SMSF sector, with the first question being – does this retirement income structure suit the client?
“There are myriad issues to consider, ranging from the role of business real property, combining family assets, estate planning, and insurance.
“It’s also about capacity, for the adviser to assess whether the client has the skill, time, and desire to go down the SMSF path. Some advisers used to have a hard limit of $500,000 before advising a client to set up an SMSF, but that’s becoming less the case.”
Howie explained to delegates that investors are increasingly focused on ETFs when investing on the ASX, then looking to the U.S. when buying individual companies. “Ultimately, we don’t think that is healthy for the Australian economy, as some of our best companies are being tempted away from a local presence by larger and more vibrant markets overseas.”
“SMSFs are critical here, being one of the most important vehicles that many active, engaged retail investors tend to use These smaller investors are critical to ensuring healthy listed markets as the big APRA funds are increasingly unable or unwilling to allocate capital to smaller or newly listed companies due to their size,” he said.
Burgess and Heffron did not shy away from the fact the sector had its challenges. “It would be wrong to assume everything is perfect in our world.,” Burgess said.
“The number of disqualified trustees, although appearing to stabilise remains high, illegal early access remains a problem, and there are still too many instances of inappropriate SMSF advice as evidenced by the Compensation Scheme of Last Resort (CSLR) claims.”
“These are issues that can’t be resolved by the SMSF sector working alone. We’re now a significant and important part of the financial services industry, so all the industry, as well as Government and the regulators, need to work together to achieve the optimal outcome.”
Heffron floated the suggestion that perhaps the time had come for the sector to consider some modest barriers to entry or at least prompts to make people pause before setting up an SMSF – possibly via a form of education to encourage careful decision-making.
“But none of these issues detract from the fact our sector faces an exciting future. SMSFs always been at the forefront of developing new strategies, new ideas and that will continue. All those ideas eventually spill over into the other super sectors – and that’s got to be good for everyone.”