For much of the past 20 years, people have been predicting a fall-off in growth of the SMSF market. After all, surely there is a natural cap on the number of funds that will be set up in a total workforce of about 11 million? But no, the number of funds, the number of members and the total assets in SMSFs just keep getting bigger.
Now, some research conducted by Macquarie Bank and SPAA (the SMSF Professionals Association of Australia) suggests that the trend may even accelerate under certain conditions. And SMSF trustees are getting younger.
The study, which involved an internet survey of 2,017 investors plus an analysis of aggregate data from Macquarie Cash Management customers and aggregate data gleaned from other Macquarie accounts, Macquarie Wrap clients and Macquarie Mortgages data, showed that 46 per cent of people who had set up an SMSF in the past three years (recent investors) were under the age of 30. This compares with only 12 per cent in that age bracket for established investors who had set up an SMSF more than three years ago.
The report also found that one in 12 adults say they plan to start an SMSF within the next three years – the equivalent of 1.4 million people. A further one in five people say they will have an SMSF at “some stage” of their lives – equal to more than 3.3 million people, according to the Macquarie/SPAA research, published last week. According to APRA, there were 503,320 SMSFs, with 958,000 members, as of March this year, managing a total of $496 billion.
The report also notes that recent investors have a strikingly different demographic profile to more established SMSF investors. For instance, one in five recent investors are women who have no children and live with one or both parents. Also, a remarkably high proportion – 23 per cent – represent single-parent families.
While it is difficult to argue with someone’s right to establish his or her own SMSF, the trend has several important implications. For instance, it is estimated that only about 40 per cent of SMSF trustees are advised by a financial planner. Accountants get the bulk of the business, which begs the question as to how asset allocation is decided. What we know is that SMSFs have a higher proportion of cash, term deposits and property than typical planner-advised clients would select or the allocation of big APRA-regulated super funds. That is, fewer growth assets and less money in managed funds.
Because their account balances are much higher than those in APRA-regulated funds, the loss of these members to the SMSF market puts added pressure on average administration fees and charges for the large funds. So, these funds are fighting back by introducing more sophisticated member-directed options which provide a similar level of functionality as an SMSF for a few hundred dollars a year in admin fees. Whether or not that turns out to be a successful strategy will be seen in due course.
Greg Bright is the publisher at InvestorStrategyNews. He is an investment writer and publisher with more than 30 years’ experience. Greg is a former economics writer for the Sydney Morning Herald and assistant editor of the Australian Financial Review.
