There are 416,000 self-managed super funds in Australia, with assets approaching about $360 billion, yet there is little hard data on SMSF asset allocation or investment performance. A Professional Planner/Russell Investments roundtable examined how trustees make investment decisions, who they rely on, and the latest developments in portfolio construction – including the growing role of exchange-traded funds
Hogan: It’s clearly a big market. It, in the last five years, has gone from being, in dollar terms, probably smaller than the managed fund area, the public offer area, to a position where it’s now the largest in terms of dollars under management, funds under management. It’s now the largest way that people actually pay for their retirement. There are an average of two members per fund, and [an] average account size of $450,000, so the average fund is just under a million bucks.
Dixon: There are about 416,000 funds, with about $360 billion in them.
Curtin: It’s interesting to note that the growth of SMSFs has been 20 per cent, until the past couple of years, whereas within APRA funds it’s about 8 per cent. So you can see the momentum that’s behind SMSFs.
Wells: According to the Investment Trends research, there’s two reasons why I set up an SMSF. It’s either an active choice because I want control, or I think I can do a better job myself; or it’s a more passive choice where my accountant or my adviser has recommended that I do it. So if you think about the former, where control is such a driver, even those who have advisers and accountants, control is still a driver. And I’d love to hear from those of you who deal with the clients, whether you’re different in terms of how much control they want, to other clients that you work with. But given that that’s such a driver, and they’re very generous about their own assessment of their own performance, perhaps, you know, they’re not seeking advice as much as, indeed, perhaps they should.
Colley: It depends what you call control, because I did a bit of a survey amongst our clients, and I said, ‘Well, why did you set up a self-managed fund?’ And one guy told me it was, ‘Because the other funds wouldn’t do it for me’. And in one case, they wouldn’t roll over something in 2007, and so [the client] got some technical benefit out of it, and he reckoned that he saved about $100,000 in just that one action that he did, that he could do in his self-managed fund that they wouldn’t let him do elsewhere. And another one was being offered some bonus shares from his overseas company, which is a public company. And he couldn’t have put that anywhere else but a self-managed fund. So that was how he saw control; that is that if I get offered something, then I can put it into this thing that will allow me to do that, which just happens to be a self-managed fund. Other people want that control over the investments, and they’re getting quite heavily into investment strategies with their funds. And they do quite a good job. Sometimes they do it well by themselves, other times they need financial planners to help them.
Satill: I’ve found that over the years, being an accountant in my previous life, and also now a financial planner, that a lot of people like this idea of “control”, but they don’t actually really know what control means. They want to be masters of their own destiny, but again they don’t really know what that means. Because they still defer to advice the whole time. I’ve got a client at the moment, and he doesn’t want to go into the sharemarket. And all he wants is real estate. So yeah, we go with a property instalment, and you can do that. But when it comes down to what the client is looking for, often the clients don’t know what they’re looking for.
Skelly: I think that’s a common trap for self-managed super funds. Bricks and mortar, direct [Australian] shares and cash – that’s what they hold. And there are risks with that, as we know.
Colley: Big funds hold the same things. So where’s the difference in the risk?
Skelly: But as you know, Australia makes up a relatively small market capital of the world. So is that the most sensible place to have all your assets, in Australia?
Knox: The SMSF sector appears to confuse corporate Australia because its growth, I would suggest, has occurred because of disillusion with what’s in the market today [and] they’ve, for whatever reason, tried to take control. Whether that’s investment-driven, or personality-driven, or whatever, it seems to me no-one controls the sector, which is an interesting start point. But I would put to you that the cost structure of the [managed funds] industry has weighed heavily and created the growth of the SMSF sector. The cost of investment management, the disillusionment of managed investment schemes not protecting assets on the way down, has probably been a key driver in that. The cost of platforms, et cetera, has just overweighed most people’s reason for using the traditional sectors. And in response, what’s happened is corporate Australia is now clamouring to get into the SMSF sector, to sell to it, and I don’t think selling to it is the solution. I think actually working with it is probably a better outcome.
Colley: Yeah, I agree with you. I think that what corporate Australia failed to do probably around about 2000-2003, when we saw a drop in the market, was actually understand the self-managed fund market, to develop products which either would have slowed down the growth of self-managed funds, or been complementary to the development of those funds, from an investment product point of view. And it seems to have failed to do that, and that’s why people go directly, without virtually any products and support.
Keenan: And I think that’s the point about control. If you think about the three sectors that dominate – property, cash and shares – it’s because most investors understand, they can touch those brands that they invest in through shares, they can touch the property they invest in, they understand the cash they’ve been investing in. That comes back to this element of emotionally owning that element of control. Fifty per cent of our shareholders in iShares in Australia are in self-managed super funds. I think that comes back to that control element, controlling the cost, controlling the liquidity, and understanding what they’re investing into.
Knox: I think the challenge for the financial planning community was the reader of the magazine; historically speaking, until recent times, nearly all people who were licensed have had an overweight decision to managed investment schemes, because dealer groups themselves have not been comfortable with planners dealing in direct asset ownership, whether it be equities or the others. So dealer groups have literally said, ‘We will not deal with the SMSF sector.’ But the message I’m giving there, ultimately, is direct asset ownership is the key to the growth of the SMSF sector, not managed investment schemes, except for hard-to-get-to areas such as small cap stocks or emerging markets, or something where clearly unitised investment can add demonstrable value. And ETFs [exchange traded funds] I think are a lay down misere for the growth of the sector, because they’re easy to get to, give the same exposure and they cost very little.
Wells: So does that mean that advisers need to have a new skill set, and that is the ability to advise on direct?
Dixon: I think there’s a structural challenge in that. I don’t think it’s the skill set or the mindset of the adviser. It’s to do with the legacy of the way the industry has grown up, where the licensing provisions make it extremely difficult for the responsible managers to manage the affairs of an adviser dealing with direct securities. And therefore, PI [professional indemnity] protection, they almost preclude people from doing it.
Hogan: It’s becoming more common though. I do direct shares, and have done direct shares for a number of years, with self-funded clients and non-self-funded clients as well, and there’s not a concern.
Knox: I agree with that, Peter, but what I would say is that’s probably because of the growth of the SMSF sector. If that hadn’t grown, I don’t think the call for direct asset ownership would be quite as strong as it is today.
Wells: I think there’s a number of things aligning. There’s the point that you’re making, the growth of the sector, and there’s the GFC and this focus on fees. And all these things are aligning to encourage the dealer group to allow advisers to advise on those assets. And certainly the statistics that we’ve seen from Investment Trends show that more and more SMSF advisers who have SMSF clients are looking to advise also on shares. And the ones who are already advising on shares tend to have more SMSF clients.
Keenan: And is it linked to independence as well? By far and away the greatest take-up of – and again I’m speaking from the ETF perspective, that’s where I come from – but most, by far and away the biggest take-up of our product in Australia is in the independent financial adviser market. And it’s our experience that, you know, they are the ones more likely to be managing large self-managed super funds.
Knox: Why do you think that is, Tom?
Keenan: Because I think they have more flexibility in their approach than just direct equities.
Dixon: Unfortunately…the accountant with the CPA logo and Chartered Accountant logo is far more trusted in his community than any financial adviser. So, even if you go and force these accountants to go and get an AFSL licence, they’ll probably go another step up on the row as being [regarded as] slightly more trusted, and doing the right thing for the clients. When people get upset with the accountant, you see this [statement]: “Accountants are forcing people into SMSFs.” No, they’re more comfortable dealing with their accountant every year, who’s been helping them with their either personal tax or business tax. And a lot of financial planners don’t realise that these guys over in the accounting side, or the accounting independent side, are being respected more in the community. And…when they tell someone [to set up an SMSF], they think, ‘Hey, they want me to do my own thing, and have my own control; this guy’s on my side.’ Whereas [when a planner says it, they think], ‘You want me to go into the AMP, there must be some sort of commission in this for you, there must be some sort of fee; I don’t trust you.’
Colley: That fits also with the characteristics of the individuals that go into self-managed funds, because they’ve usually got their own businesses, some sort of structure. So self-managed funds is just an adjunct to the corporate structure they might have.
Hogan: The interesting comment that I think Cooper made at the conference a couple of weeks ago was that the reason why he’s becoming more comfortable with self-managed super funds in the sector is because of the engagement of people in it, who use self-managed superannuation funds, they’re actually actively involved in their retirement savings.
Wells: They’re hungry, they’re hungry for investment, specifically, information; they’re hungry for it. I mean, it’s such a contrast to the industry fund. And the biggest threat to industry funds is the more affluent end of the industry fund [membership] going into and setting up their own SMSFs. The industry funds aren’t really able to respond to that. And that’s an opportunity for the advice community as well.
Knox: A point I’d like to really put to the table is most of the discussions around the SMSF sector always seems to want to compress and control it. So the responses tend to be either licensed accountants or whatever, and I thought Cooper’s comment was quite embracing. I thought it was an encouraging statement. I think if the whole key word shifts to an education program, ultimately the more educated people are on the whole concept of SMSFs, the more they’re likely to behave in the regulatory environment. Very few people genuinely want to step out of that. And I think the so-called areas that are difficult are those people [who] have set their SMSF up and have difficulty understanding that the assets are not theirs, they’re actually part of a trust, and they get a bit carried away and want to use those assets for paying down personal debt or buying personal assets. And if you control that - there isn’t a lot of evidence that that’s rampant – I think the rest of it’s an education program.
Wells: That’s really an important point, because if you’re trying to have a conversation with SMSF investors, I think it’s really important for the companies to realise that they have to get their head around the fact that they’re not in control anymore, it’s actually the investor who’s in control. And so there’s an element of respect that has to come with that, in terms of how you have the conversation with the investor. And I think, clearly, advisers who are working with SMSF investors understand that, understand how that works. It’s a little bit like social media, you know: ‘Oh, my goodness, I can’t control the message!’ But the fact is, people are talking anyway, and this is a really engaged audience. They’re talking anyway, they’re making decisions, they’re doing it whether we like it or not. And so if we can actually get involved in that conversation without trying to control it, then it’s going to be much more effective.
Colley: There’s probably two ways your financial planning can go. We get involved with the comprehensive financial plan, but often what you find with some clients is that they only want to go halfway, so they get the strategy advice, and the actual investment decision is left with them. So off they go and do their direct investing. Do you find that, Peter?
Hogan: Yeah, yeah, a lot of people like to have a conversation about certain shares and stocks, but they tend to initiate that conversation, rather than wanting me to be actively ringing them up and playing broker. They don’t want me to be broker, but they want someone to bounce ideas off.
Skelly: So is that the right kind of advice that SMSFs should be getting? I mean, isn’t there something at a portfolio construction level they could be missing if they [only] want to talk stock stories?
Hogan: Yeah, sure there is. No, that’s absolutely right. And I think the thing is that we try and encourage our clients not to be in just Aussie shares and cash, and that there would be international funds, managed funds that perhaps they should use. Certainly what we find is that they’re open to suggestions around diversification, provided that what you’re suggesting is things they can’t easily do themselves. They’re quite happy to use the third party provider, but if they feel they can do it themselves, then that’s typically what they’ll want to do.
Curtin: There is a good point in that one. There is inherently a bias within SMSFs. There is an asset concentration there. Sixty per cent of assets are either in Aussie shares or in cash. So I think there is an awareness that we need to give to clients in that, you know, diversification is key to reduce your risk. So rather than chasing return, and getting a better result from the APRA fund, you know, what we should be considering is the risk piece as well. So I would put it to the table that there is a return-versus-risk conversation or risk conversation to be had with clients. One of the things that we’re identifying is the education piece. We know the sector is very, very confident, maybe even over-confident, we know they want control, whatever the definition is around that control. However, I would suggest that confidence and control doesn’t equal competence, so there will always be a need for advice in some way, in this sector. And that issue of education is absolutely critical, because there is just not enough education out there. And we’re seeing in this sector that they are highly educated, they are the higher income earners, as such, and yet, when tested, 69 per cent of SMSFs said that they had a good understanding of their obligations, yet only 51 per cent of investors said they were the trustee.
Hogan: Getting back to what you were saying about competency, one of the driving areas that SPAA [Self-Managed Super Fund Professionals’ Association of Australia] has been set up for, when it was set up seven or eight years ago, was how to raise the standards of the professionals in the industry, who are advising this space, because I think it was probably fair to say it’s not a problem that’s been entirely solved; and whether licensing of advisers or even separate licensing for accountants who can do audits, whether that’s the answer or not, I don’t know. There does need to be more work done in that area. But we found that the professional advice that was given left something to be desired in a number of cases. The accountants, particularly, play an incredibly important role in this sector, because in the end the Tax Office can’t possibly audit 420,000 funds a year. They rely entirely on the auditors of those funds to actually, as best as they can in the circumstances, ensure that the funds that they look after are run appropriately. And so they’re critical. And the fact that a large number, as you said, of accountants do fewer than ten [audits] – some would only do one a year – I mean, with all the other things that accountants have been asked to do in their professional lives, how can they possibly stay on top of superannuation when they have such a tiny part of their business devoted to superannuation? Something needs to be done.
Hoyle: How well developed are the average SMSF trustees’ asset allocation and portfolio construction skills?
Satill: In my experience with SMSFs, what people basically want is to try and stick within the Australian market, because they can see it, and they can follow it. And they have an aversion to investing in international shares, because a) they don’t know how to do it, and b) they don’t like the concept of managed funds, they don’t understand it. So really it is an education process that we try and deliver, and I’m finding that I’m gradually educating my clients to diversify, and to have investments overseas, and by using either ETFs or managed funds for those areas. But it is a slow process, because people can’t control their investments overseas, because they don’t know how to follow – so this is the big issue. And, you know, again with ETFs, I use ETFs in a big way, but again the thing is that unless there’s something listed, like an iShare, right, and we don’t know how to monitor, they don’t know whether it’s good, bad or indifferent.
Hoyle: But is an SMSF trustee more or less receptive to your advice and guidance than a non-SMSF client?
Satill: No, I think they’re both the same. A lot of people have watched the market over the last year, and people talk to their friends the whole time, and they’ll compare levels of advice. You know, someone will say, I have one client who is risk-averse, he says, and you’ve got probably 70 per cent of his portfolio in cash at the moment – term deposits. And today you’ll find them saying, ‘I’m not happy with the performance of my fund.’ So this is the situation that you’re having to deal with.
Hogan: Are you accountable for the investment performance of his fund?
Satill: Yes. I am, actually.
Hoyle: So an SMSF member, or trustee, doesn’t necessarily come to you equipped with a higher level of skills and expertise than what’s called an ‘ordinary’ client?
Satill: I don’t think they’re any different. I just think that basically they just compare themselves to their friends, and they talk amongst their friends, and they say, ‘Why have you told this person this, and not me that?’
Curtin: But isn’t this a typical example of investor behaviour? In some ways it’s becoming much more tactical. You know, ‘What stock will I buy?’ rather than the strategic. Asset allocation drives between 80 and 90 per cent of your return, and the other 10 or 20 per cent is clever stock picking. Well, we seem to have the exact reverse here, and investor behaviour getting embedded in the SMSF industry, which is, I become more tactical and I just become a smart thinker. But at the end of the day, this SMSF is a super fund. It is for retirement. So the driver should be to accumulate your wealth for retirement. How much time have we spent around thinking of the asset allocation that’s required within SMSFs, which I think is probably the most critical thing? So is that another natural bias that we’re seeing in the SMSF market? So we’re seeing that immediate investor behaviour issue; we’re seeing local over global; we’re seeing concentration over diversification. So we’re seeing all these things happening, and I think we have got to shake this tree a little bit harder to make sure that we don’t have inherent biases in SMSFs, which maybe have grown up in other segments.
Keenan: You can’t control what you can’t understand, and so outside domestic shares and cash, and property, people have less understanding of fixed income. They’re not as familiar with the brands in international investing as they are with Australian companies. And so it comes back to that point about education.
Wells: We need to make asset allocation sexy, because if we can prove to the SMSF investor that it does impact their performance, then perhaps they’ll be more inclined to listen. But one of the marketing strategies we’ve always adopted when talking to SMSF investors directly is you never talk about asset allocation, because their eyes glaze over. You have to talk opportunistically. You know, hopefully you’re talking to them about an opportunity that is going to benefit them, of course, but that’s one of the things that, you know – when you’re talking to advisers, yes, talk about asset allocation; when you’re talking to SMSF investors it’s not opportunistic enough. You know, when you’re looking at what are you competing with in the marketplace in terms of messages, you don’t think, well, it’s going to be other – one part of what you might be competing with is another ETF, for example. But you’re also competing with residential property and you’re competing with shares and structured products, and all these other things that they’re looking at right now are the competitors, which is not an asset allocation argument. So I think a big education piece around asset allocation…is absolutely warranted, I agree with you. But I think we need to…really prove the benefits to them, so that they’ll embrace it.
Hoyle: What do we actually know about the asset allocation and the investment performance of SMSFs as a group?
Colley: As a body, our clients, they represent a balanced pool. I could pick particular funds where they’ve got large exposures to bonds, and they have had for many, many years, and that’s been a successful fund as well. And I’ve got some pensions which are in rather diabolical situations at the moment, because they’ve gone heavily into equities. But basically the overall portfolio we’ve got is a balanced portfolio.
Skelly: One thing I want to put on the table, we’re assuming SMSFs do get the right financial advice, whereas in the financial crisis I think one in five stopped getting professional advice. So I think that some of the stats that we’re hearing around the room are based on SMSFs ever getting advice. In fact, there’s a large proportion who aren’t.
Hoyle: Something like eight out of ten SMSFs are set up on the advice usually of an accountant. And that accountant is often not licensed to give investment advice.
Satill: They’re not recommending a financial planner either.
Hoyle: Right, so these funds get set up, presumably the contributions go into the fund, and then they’re effectively saying to the trustees, ‘Right, you’re on your own.’ And is this why we get these weird asset allocations in SMSFs?
Keenan: We even see that in our products, where a typical advice client will have a portfolio [that is] typically along the MSCI World, MSCI All Countries World, benchmarks. The non-advised are buying more things like China, or our emerging markets [ETFs] only. Obviously that’s because they’re chasing return, and not constructing portfolios but being more opportunistic.
Hogan: If you have an adviser, part of the process, where you get them engaged in asset allocation, is that they have to have an investment strategy. And so you have to sit down and have that conversation with them – first question you ask a new client is, well, where is it? And they’ll sort of go, ‘I don’t know.’ So the first thing I do is write one for them.
Hoyle: Doesn’t an accountant have to do the same thing?
Hogan: The accountant’s not allowed to.
Hoyle: But doesn’t the accountant have to say, ‘You’ve got to have an investment strategy – I can’t help you with it, but you have to have one’?
Wells: The number one [source] for who’s having the largest influence on your investment decisions, the number one is ‘my own research on the internet’. And then number two is daily newspapers.
Satill: People are trying to do a lot of research themselves. But one of the big problems they are faced with today is that you read every day in the papers that Australia’s got the strongest economy in the world, the second strongest economy in the world. How do you go and tell a person that you should go invest internationally when you read Europe is a basket case, China’s holding back at the moment? You might have a China philosophy or you might have a particular philosophy, and you might say, Okay, the US dollar is at an all-time high against Australia. Maybe now is the time to get into ETFs for S&P 500, when the Australian dollar starts weakening you’re going to make some money. When?
Knox: I do respect your expertise as planners and the ability to guide. But, as an adviser, why wouldn’t you focus on big picture issues in investment disciplines and asset allocation, rather than delving down to believing you can create an investment portfolio where the performance gets monitored and it’s better than somebody else’s?
Satill: Let me say, I do, I do have asset allocations and I have a strategy, and I try and convince my clients; but you’re always going to find the clients who try and say – who argue with you, saying why they shouldn’t do it.
Hogan: Financial planning is a process where you do the strategy first. And the last step of the process is the investment. But you still come to a point when they want to talk about particular stocks, or they want to talk about how they invest in a particular asset class.
Colley: What we find with our largest self-managed funds is that there’s a propensity to have more managed funds. The less money they’ve got, they’ll go to direct stocks. Now, whether that’s a more gambling sort of approach than those that have only got a small amount of money; or those that have got a lot more money in there, the self-managed funds, whether they’re prepared to go to advisers, and advisers then balance their portfolio with managed funds.
Skelly: What about the intersection of tax advice and investment advice? Are we as an industry doing enough on the tax-meets-investment side?
Dixon: No. Because, for example, ETFs, if they’re run with a very passive approach to index turnover, are so much better for your client than even the best active manager. Because the active managers, with their high turnover in the accumulation phase, are spitting out short-term capital gains all the time, getting taxed while you’re still in the accumulation phase. That’s taking 15 per cent off the table. The better ETFs that I’ve seen keep that to a minimum, because index changes are relatively small. So it’s a much, much better result. So let’s say you’re XYZ product manufacturer, you should be thinking about going, well, I’m going to have a fund for you, but this is the SMSF version where we’ll consciously reduce the turnover, and we won’t just keep selling. You know, we’ll try and reduce the amount of short-term capital gains.
Skelly: So we need to evolve our products to think about tax?
Colley: Exactly, because it gets back to control, flexibility, and that idea where people can actually pick a stock, sit on it for as long as they wish, and then make that decision as to whether they get the capital gain.
Dixon: So if I was an active manager, I’d at least create a low turnover version of every one of my funds, because a lot of the turnover they create, they’re just thinking about winning the league table with the gross returns, because that’s how they pay them, that’s how they benchmark them, that’s where flows come from. But SMSFs are not totally unique, because a lot of people try to develop products in retail land that can do the same thing. But one of the massive advantages is, you can hold your assets from the age of 40, convert to a pension at 60, and never pay the capital gains tax.
Colley: So you probably want to have an accumulation-style fund in that phase of super, and a pension-style fund, if you might have large capital gains coming in.
Hoyle: Do we have any idea of what proportion of self-managed super funds are actively advised? And what proportion are not?
Satill: I would say to you that if 20 per cent of self-managed super funds were advised, that would be a lot.
Wells: That’s exactly the number; it’s 19 per cent. Well, certainly 19 per cent of SMSF investors used an adviser in the last 12 months. That was at August 2009. It’s actually probably a higher figure than that. And 45 per cent said they’d used an accountant.
Satill: Accountants are lacking control. I’ve seen it over the years. And accountants don’t readily recommend that a client goes to see a financial planner. And it’s almost from a fear of losing that client, because if [the client gets] comfortable with that financial planner and the financial planner says something which the accountant has not said before, the client starts wondering about the other advice that the accountant has given. And accountants are always scared, and that’s why you’ll find – if you look at any accountant/financial adviser relationship, the accountant and financial planner are not in partnership. You will see that only a small portion of clients use the financial planner.
Colley: I think it works both ways. You see financial planners reluctant to recommend accountants, and accountants reluctant to recommend financial planners unless they’ve got some close relationship, like you point out.
Satill: The problem is professional indemnity insurance for accountants. Accountants are petrified of giving advice, and they’d rather give generic advice, and really don’t want to give investment advice. I’ve seen that time and time again.
Hoyle: Tom, you’ve said that half of your investors have self-managed funds? Do you ask them why? And where does cost come into that decision-making process?
Keenan: Cost is a big driver, but it all comes back to this, what we’ve been talking about for most of the morning: control. Control over cost, control over liquidity, control over the after-tax outcome. Control in a lot of the things that the traditional managed fund traditionally hasn’t helped. And so, yeah, an ETF can give exposure to equity markets for a fraction of what has traditionally been the case, and that is a major driver.
Dixon: If you’re an adviser, it takes a while, particularly if your businesses works on commission, but it leads you to actually have the guts and ask for your fee. I’ll tell you with the GFC, it’s hard to ask for your annual retainer. It’d be much easier to keep on slipping it out the back door. Don’t forget how powerful for a retail investor it is showing something like [listed investment company] Argo that charges 0.1 per cent per annum, and Rob Patterson has been running it since before I was born – I think he started his job in 1969 – and it’s beaten the market by 1 or 2 per cent a year. And that’s a chart that’s pretty easy to show people.
Keenan: And the MER on a fund is just one part of it. They’re traded on the ASX, so the savings from implementation are real from an adviser’s business [perspective] as well.
Dixon: And the record keeping is a lot easier. Same with people’s accounting systems. Deals really well with ASX listed shares, and talks to CHESS. Every managed fund provider is using a different platform. And have you tried transferring a managed fund in specie, compared to transferring an ASX share? Not something I’d recommend to anyone who likes themselves. You know what I mean? It’s a horrible experience. ETFs certainly – if you want to get your [managed fund] into self-managed super funds, whatever fund you have, turn it into an ETF as well.
Curtin: Managed funds today, I think they constitute maybe 10 per cent or even less of all assets within SMSFs. So I guess that in itself, that’s not the major competitor. If I look at the asset allocation of that self-managed super fund, we’re talking about direct shares and cash; so is ETF the proxy for a direct share option, as well as investing that cash that’s out there in the market? Because with the direct share pieces you can become very tactical, do your own research on each stock and then you choose that, et cetera. At the end of the day you actually have a little bit of risk in that research, and the rigour behind it. So do you see that ETFs are going to actually provide that rigour for clients, and become an easier implementation piece? Hence why it is becoming quite popular?
Keenan: I think the benefit of ETFs is flexibility. So they can be used to allocate longterm, buy-and-hold strategic asset allocation. And we see that used a lot. And I think as well as they can be used, actually. So if someone wants to make a call on a market, and that’s not a long-term view, then they can do that. But the point is that they control when they enter, when they exit; they control exactly what market they’ve been looking for. So we’ve heard a lot that international investing is difficult, not a lot of self-managed super funds invest internationally. And I think part of that is that they haven’t had a vehicle to do so. International managed funds tend to be more expensive, they tend to be less liquid, and so therefore the end investor has less control over that international investment. [An ETF is] on the ASX, T+3 liquidity, like any other stock, and so it brings that element of control. And so, hence I think that international investing may become more popular than selfmanaged super funds, given this new vehicle that is now there for them to look at.
Knox: A trustee can be both tactical and strategic: they could compose a portfolio, a new class in ETFs around the risk profile, if they had that discipline. Conversely they can sell quite rapidly through impulse or tactically if they want to, on a weekly basis. I’d suggest a lot of them will do that.
Wells: I think that’s an important point, because part of the opportunistic nature, particularly when it comes to the share trading of SMSFs, is I want to win, you know, I want to beat the market. A lot of active traders are trying to do that, and many active traders are SMSF investors. And so I think that’ll be the education piece, because I’ve still got to feel like I’m achieving – the human nature element of it. It’s got to still feel like I’m achieving something. If I’m just buying a market, I can’t really beat that market. So therefore, I think the point you make about having those different tweaks, I think that will become appealing.
Satill: One concern though, about ETFs, some ETFs, is the thinness of the volumes on a daily basis. And you never know if…your share is fairly valued or not. And who’s buying the shares? Is it iShares buying it back, or is it another person? These are always the concerns that a lot of people have, either management or whatever.
Curtin: I think the notion of being clear on the outcome. I think, what if the outcome of this portfolio, as such, is going to be more critical, and what’s its role in the portfolio? One of the things that we’re considering at Russell is this outcomeoriented portfolio piece, and considering what we’re building our ETFs [for] and saying, ‘Well, what role did that play?’ Is it playing the income role, is it playing the high dividend role, et cetera, et cetera, for an SMSF player. So I think focusing on the output is as critical as focusing on the inputs, from an ETF perspective.
Graeme Colley – national technical manager, ING Investment Management
Patricia Curtin - managing director, retail, Australasia, Russell Investments
Alan Dixon - managing director, Dixon Advisory
Peter Hogan – financial planner, Avenue Capital Management
Simon Hoyle – editor, Professional Planner
Tom Keenan – director, iShares Australia
Ian Knox – managing director, Paragem Partners
Trevor Satill – financial planner, Picadilly Financial
Amanda Skelly - director, product development (ETFs), Australasia, Russell Investments
Sally Wells - founder and managing director, endgame communications