Turning of the tide

Investment Trends senior analyst Recep III Peker speaks to Katarina Taurian about changes in trustee behaviour in the past 12 months, and how new research on SMSFs spells good news for practitioners.

The research you released recently in conjunction with Vanguard suggests there’s many untapped opportunities for planners within the SMSF sector. What are the key areas of the data that support that?

The proportion of SMSFs open to tapping into advisers' expertise is the highest it’s been since the GFC.

What we find is that the proportion of trustees who use a financial planner has remained steady at last year’s levels, so 41 per cent, after falling by about 20 per cent between 2009 and 2013.

The proportion using a planner has stopped falling, and in fact what you’ll find is that because there are more SMSFs out there now, it means that in absolute terms there are more trustees who use financial planners.

Another key thing, the key one, is that there are 286,000 trustees that have unmet advice needs that they’re willing to pay for. And most of these unmet advice needs are around [areas] like SMSF pension strategies, ensuring their money lasts for life, inheritance and estate planning, things financial planners can do. In addition to, of course, investment strategy, offshore investing and so on.

You noted SMSF investors are moving into a period of ‘cautious optimism’ with their investments. What does that mean and what’s the change? Haven’t trustees always been cautiously optimistic?

What we find is that compared to the 18 months before 2013, since the beginning of 2013 trustees have been more optimistic. So the 18 months before 2013 we went through a period with high levels of fear and so on.

Now what we’re seeing is that the market return expectations are higher, but not as high as you might expect given how the share markets are going. The share market continues to rise but despite this, investors return expectations are coming off the boil.

There’s plenty who are confident and they’re investing for growth and have a positive outlook on Australian shares, but there are others who are worrying about things like protecting assets or income against market falls, so we’re seeing that they’re increasingly open to seeking opportunities out there but the amount of excess cash they hold isn’t coming down.

So there’s $44 billion that they’re ready to invest; they’re just saying ‘we’re still holding back a bit because of the volatility’.

How much of a role is property playing in the reasoning for SMSF establishment?

What we find is that among those who are interested in SMSFs, [that is] setting one up some time in the future, about 38 per cent say one of the reasons that they want to do this is to buy property through their super.

But, at the end of the day, what will happen is a lot of these people will go to an adviser or an accountant and say ‘look, this is why I want to set up an SMSF’, and if an SMSF isn’t appropriate for them, then they will be advised against it.

So overall, it appears that there are a lot of people who aspire to have an SMSF some time in the future, not necessarily in the immediate future, and a lot of them think that property is a part [of that].

But generally, bigger than property, they say, ‘we want more control’. Forty-nine per cent of them say they want more control of their investments.

How is the future demand for SMSFs shaping up?

What we find is there’s a strong link between market performance and the intention to set up an SMSF. So during times where the market is underperforming, SMSF establishment goes up. Then when super funds are doing well, the markets are doing well and super funds are performing well, intention to set up an SMSF tends to recede.

So what we found is that in 2013, 18 per cent of Australians were saying 'some time in the future, we’d like to have an SMSF'. This is down to 13 per cent this year, but what’s interesting is that the bit which has come down is the more ‘aspirational’ SMSFs, so those who are saying they want to do it some time in the future.

If you look at those who want to set up an SMSF in the next 12 months, so the more serious group, that proportion has been largely unchanged from last year’s study.

Last year, two per cent of the Australian adult population were saying, ‘I’d like to set up an SMSF in the next 12 months’; this remains relatively steady at two per cent this year as well.

Investors are changing where they go to set up an SMSF. Can you explain why?

If you look at those SMSFs established before 2011, essentially a bit more than half were going to an accountant to set up their SMSFs.

But if you’re looking at the SMSFs set up between 2012 and 2014, only 31 per cent said, ‘I went to an accountant’; instead, more are going to an SMSF administrator, which makes sense if you think about it - there are a lot more ads out there now, and the costs are coming down for setting up an SMSF yourself, especially online. There are providers out there who say, 'look, we’ll set it up for free and then you’ll just pay the ongoing fees’ and so on.

So as these types of products become more available, it just opens it up as a channel or avenue for people to set up their SMSF.

Recep III Peker will be speaking at the 8th Annual SMSF Adviser Strategy Day. For more information, please click here.

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