The SMSF industry is being reshaped, with a decline in the rate of new fund establishment being offset by a sharp increase in average fund and member balances, according to data presented at licensee owner Easton Investments’ educational conference in Sydney on Friday.
Speaking to an audience of accountants and advisers that make up Easton’s three licensees – GPS Wealth, Merit Wealth and The SMSF Expert – Merit Wealth national training and education director, Garth McNally, said the decline in SMSF establishment shouldn’t be taken as a negative.
“The growth rate in SMSF establishment is the lowest it’s been in ten years,” McNally said, “Does that worry you? Don’t let it.”
Vanguard, in conjunction with researcher Investment Trends, released a report last week showing that SMSF set-ups haves declined from a peak of 43,000 in the December quarter of 2012 to 21,000 in the first quarter of 2019. The report relied on data from the Australian Tax Office.
The SMSF sector represented $747 billion in retirement savings at March, 2019, the report noted, compared to $1,8 trillion in APRA-regulated super funds. There were 598,000 SMSFs at the start of the year, an increase of only 2 per cent on the previous year.
McNally agreed with the report’s assertion that the decline in growth is primarily due to uncertainty in the run up to the Federal Election, and the prospect of a Labor government that looked set to introduce sweeping reform to superannuation, including the repeal of excess franking credits. McNally said this led to confusion and a loss of consumer confidence.
The other reason, he added, was that many people wound up their super because they realised the balance was too low to make it worthwhile. “I’m really happy about that,” he said. “There happens to be a set of clients that should not have had those SMSFs in the first place.”
Neither of these factors portend negatively for the industry, McNally believes. He made the point that the rate of SMSF establishment was always going to level out once the marketplace matured. ATO data shows that new self-managed superannuation funds for people aged 30 to 40 is on the increase. According to McNally, “if you’re older than that you’ve probably already got an SMSF.”
What’s most encouraging, McNally continued, was an increase in the average balances of SMSFs. Vanguard puts the average SMSF balance at $1.2 million, which McNally said is an increase on previous years.
“The only way is up,” McNally said, adding that the Vanguard report revealed there was an increase in the number of SMSFs that have unmet advice needs from 275,000 in 2018 to 315,000 in 2019.
“Why I get excited about that is… we’re dealing with clients who are going to be looking for an increased level of service.”
The areas Vanguard believes advice will most be needed are estate planning, tax and income strategies, post-retirement planning, portfolio strategy and investment selection.
“Yes, the establishment rate is dropping,” McNally said. “But to me advice needs are going to grow.”