The long-term outlook for self-managed super funds (SMSFs) is promising and exciting as an increasing number of younger people want to take control of their personal finances, the SMSF Association Thought Leadership Breakfast heard at its National Conference today.
The five-member panel, dissecting the topic How big can the SMSF sector BE? moderated by Class CEO Tim Steele, offered myriad reasons for the sector’s continuing growth, including individuals wanting to take personal control over their finances, asset allocation, and supply-side factors.
Investment Trends Head of Research, Dr Irene Guiamatsia, said: “Although the average age of SMSF members remains high at around 60 years of age, SMSFs are being established at a younger age, boding well for long-term growth.
“For this cohort, the main driver for growth remains the desire for control. Early exposure of Millennials and Gen Z to digitally delivered financial services reinforces control as an important component of their engagement with service providers. Also, Australians’ well-documented bias towards direct property as an asset class, and their desire to access it, helps stoke SMSF establishments.
“Supply side factors, such as low-cost initial setup, greater synergies between accountants and adviser practices and a slightly softer regulatory posture also play their role.”
Heffron Consulting Managing Director, Meg Heffron, said younger people will end up with larger balances at the same life stage than older generations and are more engaged – so the fact that SMSFs are perfectly suited to be someone’s ‘platform for life’ makes them well positioned for the future.
“And a strong SMSF sector is actually important for the whole super system. SMSFs drive innovation that eventually trickles through to the broader superannuation space. We only have to look at the great improvements retail funds have made when it comes to offering investment choices to see how competitive pressure from SMSFs improves super choices for everyone.”
SMSF Association Deputy CEO / Director of Policy & Education, Peter Burgess, said Association-commissioned research by the actuarial firm Rice Warner into costs, and the University of Adelaide into performance, have demonstrated the sector’s competitiveness on reaching the critical mass of $200,000 and this will hopefully be a key driver of growth.
“This research is already having an impact with ASIC releasing updated SMSF Advice materials late last year removing references to $500,000 as being the minimum recommended balance to start an SMSF.
“Ensuring SMSF members do the right thing is critically important and having access to quality SMSF advice is a big part of that.
“If we get this right the sector can achieve its full potential, but if we get it wrong we may see restrictions and conditions imposed that could stifle the growth of the sector.”
On the issue of whether a growing SMSF sector will be vulnerable, Professor Hazel Bateman of the University of NSW’s Business School of Risk & Actuarial Studies noted that financial literacy is poor across the entire population and that it declines at older ages.
“Yet people tend to be over-confident of their abilities, with the data from the nationally representative HILDA (survey showing that self-perceived financial capability increases with age.
“Behavioural biases are also important. Procrastination might lead to some not adequately managing the SMSF they have established or using inappropriate metrics to measure its performance.
“Ensuring that SMSF members have access to appropriate advice is very important. It is important that the advice is good quality – related academic research shows how people are vulnerable to ‘first impressions’ and ‘confirmation bias’ and may stick with ‘ineffective advisers’.”
Steele concluded: “Today’s panel discussion and audience engagement demonstrates a sense of collaboration among industry participants to help shape the future of the SMSF industry and improve the retirement outcomes for more Australians.
“As an industry participant, Class will continue to innovate and invest in technology solutions that enhance business efficiencies, scalability and create value.”