SMSFs facing triple risk to retirement savings: New research reveals opportunity to mitigate

SMSF Association Media Release

19 November 2018

  • Inaugural SMSF Week kicks-off with new research to bust common misconceptions
  • Research reveals gap between SMSF trustee’s knowledge and action when it comes to diversification
  • SMSFs can be cost effective from much less than $1 million

More than one million Australians with SMSFs are potentially facing three key challenges to their retirement savings because they potentially do not have the right assistance, according to the SMSF Association. A lack of appropriate diversification to mitigate investment risk, an unstable regulatory environment, and returning volatility to investment markets are combining to pose a unique set of challenges for SMSFs.

The warning comes as the SMSF Association launches its inaugural SMSF Week, supported by OpenInvest, with a new report using Investment Trends data.

SMSF Week, and the new report, will lift the veil on five of the most commonly held questions about SMSFs in order to improve Australians’ understanding of SMSFs and how they can mitigate against common SMSF risks.

The report reveals an opportunity to improve diversification within SMSFs. Fifty three percent of SMSFs surveyed in the research cite barriers to achieving diversification and 47% of SMSFs have over half of their portfolio invested in one investment type. This is despite 82% of SMSFs believing diversification is important. There is a concerning gap between knowledge and action amongst SMSFs, regarding diversification.

The report also found that regulatory uncertainty is now the top cited challenge in managing an SMSF. The imposition last year of the $1.6 million transfer balance cap once again moved the superannuation goal posts and the recently proposed changes by the Australian Labor Party to remove franking credit refunds could result in a significant reduction in retirement income for many Australians, particularly those with SMSFs.

Sixty percent of SMSF investors aged 65 or older plan to invest in blue chip shares in the next 12 months according to the report. These blue chip shares commonly encompass strong yields from franking credits. Removing or limiting refundable franking credits on dividends would turn the world of many self-funded retirees upside down.

With these insights in mind, the five questions that SMSF Week will address are:

  • Are SMSFs suitable for everyone?
  • Do SMSFs need $1 million to be cost effective?
  • Could the removal of franking credit refunds significantly impact SMSFs?
  • How can I be sure my SMSF is appropriately diversified?
  • Does having an SMSF mean I have to go it alone?

John Maroney, CEO at the SMSF Association, said, “We want to help Australians take control of their retirement savings. We want to provide answers to dispel misconceptions, bridge the gap between knowledge and behaviour, and connect SMSFs with the best insights, advice, tools and technology.”

“It’s surprising that one in five SMSFs have not used any financial advisers in the last 12 months – particularly when we know regulatory and market volatility is increasing.

“SMSFs place you in the driver’s seat to take control of your retirement savings, but with more control comes more responsibility. However, it does not mean you have to manage everything yourself.

“SMSFs demand time, commitment, a strong level of financial literacy and should always be set up with the right expert assistance and this is not for everyone.

“As the old adage goes, it takes a village to raise a child; and it will take a range of advisers to build your SMSF throughout your investment journey. Don’t fall into the trap of taking control of your retirement savings only to risk the best outcomes without the right expert assistance.” he said.

The SMSF Association will also use SMSF Week to continue to educate Australians that SMSFs do not need $1 million to be cost effective, in fact, far from it.

According to SMSF Association research SMSFs can be appropriate and cost effective well below this amount depending on the trustee’s individual circumstances. The key to success is the right assistance from the start, not when you hit a certain number.

“Regulatory instability will always be difficult to navigate, but specialist SMSF advice can help all SMSFs cope with regulatory changes,” Mr Maroney said.

“There really should be no barriers today for SMSFs to be run cost-effectively and to mitigate against market and regulatory volatility.

“The right assistance and tools can bridge the gap in the SMSF sector between a strong understanding of the need for true diversification and the ability to achieve it.

“Investing in an SMSF means you’ve taken control of your retirement savings, it does not qualify you as an expert investor, and one of the most effective ways to achieve a secure and dignified retirement is with expert assistance.

“Our aim is to help Australians better understand the potential of SMSFs as a powerful retirement savings tool, whilst also educating SMSF trustees and connecting them with the best assistance and tools available,” he concluded.

SMSF Week will run from 19 – 23 November. Learn more here.

Livestream Thought Leadership Panel: The 5-year evolution: what’s the next frontier for SMSFs?
The Week will feature a livestream thought leadership panel hosted by the ATO, on Tuesday 20
November. The panel discussion will include spokespeople from the ATO, ASIC, OpenInvest,
SuperConcepts, Investment Trends, and the SMSF Association.

Register for this event here.

SMSF Week is proudly supported by OpenInvest, Australia’s first independent online marketplace designed to enable SMSF trustees to engage with and select an
investment management company to help them manage their investment portfolio. OpenInvest empowers investors with knowledge, choice and control, and commits to always use plain
language, be transparent, keep fees low and never have a conflict of interest. OpenInvest launches on the first day of SMSF Week, Monday 19 November.