Member-direct options of ‘questionable’ value for APRA funds
Member-direct investment (MDI) options may not serve to stem the SMSF “tour de force” as APRA-regulated funds intend and may drive more investors to the SMSF sector, a new industry white paper has warned.
The white paper, from software company Bravura Solutions, noted SMSF growth is expected to continue to represent a “significant challenge” to industry and retail funds, with the sector expected to hold $800 billion in assets by 2032.
Bravura also pointed to research from Macquarie, which suggested APRA-regulated funds are now losing ground with individuals under the age of 30 as well as those in the retiree space.
While some APRA funds have attempted to stem the leakage to SMSFs via member-direct investment options, Bravura said the efficacy of this strategy is “questionable”.
“[MDIs] do not serve to cut the tie with a major institutional provider or provide direct control and ownership over superannuation, which is often a powerful source of motivation for those choosing SMSFs,” the white paper stated.
“It is also entirely possible that MDIs will have the opposite effect to that intended, by providing members with a taste of independence that will ultimately encourage the move to an SMSF further down the track.”
Bravura suggested the recent dip in the number of new SMSF accounts opened is not proof MDIs are working, with economic cycles representing an equally credible explanation.
When the market provides decent returns, investors are less likely to transfer their superannuation to an SMSF, Bravura said.
“Super funds need to start thinking outside the square with respect to SMSFs. Astute funds are seeking to share in the fruits of the SMSF market, not by directly competing with it, but by servicing it with the likes of investment offerings,” Bravura stated.
“Funds committed to genuine member centricity can create strong and positive relationships with their members that outweigh their need for independence and personal control over their superannuation. Whether super funds are seeking to service or compete directly with SMSFs, technology will represent a key enabler.
“The capacity of funds to respond to continued SMSF growth would also be enhanced by system modernisation. Whether developing new investment products aimed at servicing the SMSF market or competing on the basis of member centric offerings, funds would benefit from flexible and scalable technology.”