SMSF trustees need access to unbundled and affordable administration and reporting solutions to help track the performance of their investment portfolios, Peter Dorrian writes.
Exactly how the self-managed super fund (SMSF) sector has performed is anyone’s guess. The Australian Taxation Office (ATO) regularly publishes statistics on the size, demographics and asset allocation of the SMSF sector, but there’s no way of accurately measuring the investment performance of Australia’s fastest-growing super sector.
While most industry, corporate and retail funds are governed by the Australian Prudential Regulation Authority (APRA) and have reporting and administrative obligations to the ATO and their members, SMSF trustees aren’t required to track and report performance.
Yet as the SMSF sector grows, long-term performance will have an enormous impact on how much money many people will retire on, and more importantly, whether they achieve their financial and lifestyle goals and objectives.
Lack of reporting tools
Part of the problem is that SMSFs, along with other retail investors, currently don’t have access to readily available administration and reporting tools.
Administration vehicles like wrap platforms can currently only be accessed through a financial adviser. Furthermore, the Investor Directed Portfolio Services (IDPS), or wrap structure, bundles advice, investment management, administration, consolidated reporting and custody. Investors find it difficult to cherry-pick the services they want and are willing to pay for.
Even if SMSF investors could directly access wrap platforms, for the majority who are fiercely independent and fee-sensitive, a bundled solution may not be appropriate.
There is definitely a place for a solution that allows investors to choose only the services they want and leave the rest. There are currently business models that allow SMSF trustees to pay only for strategic advice or investment management. The ASX’s new mFund Settlement Service, for example, makes it easy for investors to buy unlisted managed funds without the need to use a wrap account or consult an adviser.
However, no one offers administration as a completely separate value proposition.
An opportunity for advisers
Advisers and service providers who develop an unbundled solution to meet the unique needs of SMSFs could capture the opportunity.
While SMSFs are a distinct segment of the market, their trustees are subject to the same rules as all super fund trustees. Specifically, under the Superannuation Industry (Supervision) Act, trustees are required to formulate, implement and update investment strategies that are in the best interests of their members.
The most obvious way to measure the success of a strategy is to monitor ongoing performance against an internal benchmark. For an SMSF, an appropriate target or benchmark might be inflation plus 3 to 5 per cent, depending on the age and risk profile of its members.
In addition to helping construct diversified portfolios that can potentially meet and even exceed targets, financial planners can help SMSF trustees see how their funds have performed over the medium and long term.
Armed with this performance data, trustees can then analyse how they’re tracking against their retirement objectives. They can gauge how effectively an investment strategy or asset allocation mix is working, and if necessary, change it.
This is where well-credentialed financial advisers can really be of help to SMSF trustees: by acting as investment coaches to ensure that SMSF trustees are considering the myriad of investment opportunities available in the market and to ensure a well-diversified and high-quality investment portfolio.
