SMSF trustees need greater guidance

That is the main thrust of new research commissioned by the SMSF Professionals’ Association of Australia (SPAA) and Russell Invsetments, and carried out by CoreData.

The third annual Intimate with Self-Managed Super report, presented at SPAA’s annual conference in Melbourne last month, canvassed 1,555 Australian consumers, including 437 SMSF trustees and 224 high net worth individuals who are not SMSF trustees.

Russell's chief executive of Asia Pacific, Alan Schoenheimer, says trustees tend to find the traditional 70-30 asset allocation model too inflexible.

Because many SMSFs are set up out of a desire for increased control, trustees want to be able to run the fund the way they want. This presents a key challenge for those advising within the sector to provide guidance without seeming to be dictatorial, he says.

Trustees can be divided into three styles: ‘controllers', who effectively want to run the fund themselves; 'advice seekers' who want help or guidance in running their fund; and 'outsourcers' who wanted someone to run the fund for them.

Currently, a majority of trustees fall into the first two categories.

A further key finding of the report was that close to half of trustees are planning to change their asset allocation in the post-retirement phase.

According to Schoenheimer, it was encouraging that this many realised the strategies that are appropriate in the accumulation phase are not necessarily the same as those that are ideal in retirement.

The flipside of course is that it leaves almost half of trustees not planning to update their asset allocations at retirement.

However, that finding also represents an opportunity for advisers, particularly with so many of the baby boomer cohort now moving towards retirement.

"Once they stop accumulating, once you start to draw down, you can't afford the outcomes that you could in the pre-retirement phase," Schoenheimer says.

This stage requires a different approach and plenty of SMSFs are asking about it and planning for it, but that doesn't mean they know what to do. They still need to be exposed to markets for growth and income but they can't afford the same setbacks, he says.

The research also found trustees’ allocations were heavily weighted towards cash and Australian equities – the ‘familiar’ assets. Diversification was low by industry standards.

Cash and term deposits accounted for one third of total assets in 2012, up from around one quarter in 2011. Australian equities holdings were down from 43.5 per cent to 37.1 per cent.

With access to other asset classes becoming easier via listed options such as global equities exchange traded funds, these proportions should change, but trustees are still leaning towards those with which they are familiar, according to Schoenheimer.

This is something that those who advise on SMSFs need to address through client education and by "nudging" trustees in the right direction, he added

The research also found a high level of confidence among trustees, both in the likelihood of their meeting their retirement objectives and in their own investment knowledge.

Almost two thirds said they were at least reasonably confident of meeting retirement objectives, while almost 60 per cent rated their own investment knowledge as ‘strong’ or ‘very strong’. Just over 60 per cent were relying on their own investment research to drive investments.

SPAA chief executive Andrea Slattery says there is a huge opportunity for advisers in terms of educating non-SMSF trustee clients about SMSFs because one of the main reasons more people don't start SMSFs is a lack of confidence or knowledge.

The main reason for avoiding SMSFs among high net worth clients was their preferring the security of Australian Prudential Regulation Authority-regulated funds.

But for other client categories, the key reason was a lack of knowledge or confidence, which Slattery says is "hugely disappointing" in this day and age with so many opportunities for training and learning.

Advisers can build their businesses by helping their clients understand the sector. Trustees surveyed for the report sought out specialists, they were coach seekers and they wanted a mentoring relationship, she says.

Chris Kennedy is the editor of SMSF Adviser