Self-managed super fund trustees remain loaded up with cash, as this year’s just-released Intimate with Self-managed Superannuation shows, however, their level of risk-aversion has eased and they’re waiting for a catalyst before their next asset allocation move.
It is at this moment that financial advisers are best placed to not only provide trustees with appropriate investment advice, but to understand the levels of guidance or assistance desired by the different trustee types, namely: controllers, coach seekers and outsourcers.
Where to next for SMSF cash?
Cash remains king in 2013, with SMSF trustees further increasing their allocation to cash and term deposits last year to 33.9 per cent from 25.6 per cent in 2011. What’s different this time is the reasoning behind their motives for holding such high levels of cash.
Whereas about half of trustees cited risk aversion and de-risking as the main drivers for allocating more than 10 per cent of portfolios to cash in 2011, only one-third cited this as their main reason in 2012. Instead, 45.7 per cent of trustees say that the main driver for holding these levels of cash is because they are waiting for a better alternative. In other words, falling cash and term-deposit rates as well as a recovery in equity markets are leading trustees to begin to look elsewhere for more attractive returns.
Where are they likely to go next?
More than half of trustees that will seek alternative investments to cash are likely to look to Australian equities. If we break that down, the majority of controller trustees are more likely to look at Australian equities, compared to only 50.1 per cent of coach seekers and 37.3 per cent of outsourcers.
Core Data defines controllers as those who are interested in managing their money and like doing it themselves, coach seekers as those who would rather do things themselves but need information to support their decisions, and outsourcers as those who would prefer someone else manage their money and finances.
Challenge for planners
With SMSF trustees poised for their next move, it is now that financial advisers need to position themselves as the preferred channel for providing strategic investment advice, however they do have a challenge on their hands.
In terms of how trustees will access these asset classes, a greater appetite for transparency and control will see three-quarters of trustees buy assets directly, while only just over one-third will use managed funds. This is supported by the fact that fewer planners are recommending the use of managed funds to trustees, falling to 65.6 per cent from 71.5 per cent in 2011 and 77.9 per cent in 2010.
SMSF trustees wear the pants
A majority of trustees consider that they have strong or very strong knowledge of investments, compared with only one-third of APRA fund members. While this fact may not be a surprise to most, what may be news to some is that the type of investment assistance sought by most trustees is actually very different to traditional forms of investment advice. The use of SMSF specialists for asset allocation decisions has doubled to 22 per cent in 2012.
These trends reflect the continued desire for control by trustees over investment decisions and a move towards the use of specialists for advice – a departure from the traditional holistic advice model or one-stop-shop offered by many financial planners.
Frustrated with tradition
However, they also reflect a growing frustration with traditional asset allocation methods, which are seen by some trustees as an attempt to force them into inflexible approaches and products. This applies in particular to controllers, with the overwhelming majority of controller trustees driving asset allocation decision themselves.
Such views can lead to a lack of appropriate diversification and portfolio allocations that simply shift between cash and stocks. This demonstrates the clear need to educate trustees about the concept of multi-asset investing.
However, engagement has to begin with strategy, not product or investment, with the purpose of building confidence in and understanding of the advice proposition.
Salvador Saiz is head of advice, wealth and super at Core Data Consulting
