The amount of SMSFs using financial advice has taken its largest ever annual drop despite a surge in the number of funds that have unmet advice needs, according to Investment Trends.

In the last year the number of SMSFs using financial advice dropped from 225,000 to 195,000, the biggest fall since the research firm began collecting data.

It’s not that trustees don’t think they need financial advice; an all-time high 335,000 SMSFs say they have unmet advice needs, an increase from 315,000 in 2019.

It’s a conundrum that Investment Trends chief executive Michael Blomfield called “problematic”. The reason behind it, he said, may be that the advice trustees are receiving isn’t what they’re looking for.

“The number of people who want advice keeps growing but it feels like the advice being given is not hitting the mark for them,” Blomfield said.

Presenting data from the 2020 Vanguard/Investment Trends SMSF Report, the CEO said during the pandemic trustees are mostly looking for help with an investment strategy review, followed by pension strategies and investing for a regular income.

Trustees may be receiving advice in these areas, Blomfield commented, but something is going wrong in the messaging.

“Planners still have a bit of work to do here to build out their value proposition to SMSF retirees,” he said.

A flush market

The 15th annual edition of the report, which canvassed almost 200 advisers and over 3000 SMSF trustees, revealed that the number of SMSFs continues to grow but at a consistently slower rate.

After peaking at a growth rate of 8.7 per cent 42,033 new funds) in 2012, the SMSF growth rate has steadily declined and was 3.3 per cent (20,028 new funds) in the year to September 2019.

While a lot of this can be attributed to a relatively full market – most of the people that want an SMSF already have one – Blomfield said Labor’s ultimately unsuccessful bid to curb franking credit refunds as part of its election campaign may have triggered a wave of regulatory concern.

“SMSF trustees have been saying for a long time it’s just regulatory uncertainty that makes them think twice and three times if SMSFs are the right place to be,” he said.

An APRA-regulated back-up plan

An increasing number of SMSF trustees are opting to retain an APRA-regulated superannuation fund as a back-up, the report showed, with almost half of the people considering setting up an SMSF saying they will keep their old fund as well.

This year 48 per cent said they would keep their old fund, up from 44 per cent the year before and 34 per cent in 2018. Back in 2015 only 32 per cent of new trustees wanted to keep their old fund.

According to Blomfield, there are “a bunch of things” driving this trend.

“Number one is a personal insurance policy,” he said, referring to peoples’ inclination to spread their interests. “The second driver is a pretty logical one, which is that contributions are being paid into that account by their employer.”

Another driver is that people want to retain the group insurance in their APRA-regulated fund, he said, but this was “lower down the list”.

“The good thing is that it keeps diversification at the outset,” Blomfield said, adding that trustees are refraining from putting all of the responsibility for maintaining their won wealth in their won hands.

No interest in fixed income

On the investment side, the report revealed trustees have a stark disinterest in fixed income as a defensive asset, and an alarming lack of awareness about the asset class overall.

Trustees profess a strong interest in safe income streams, Blomfield says, yet little interest in fixed interest investments. The reasons for this discord is a combination of the tendency to chase yields and a lack of understanding, he explained.

“When we asked where they get their exposure… they said ‘equity fixed income’, [which is] not fixed income,” Blomfield recalled.

People are using the equity market to try and access fixed income-like returns, he said.

“That as a strategy needs to be separated from what we call real or pure fixed income,” Blomfield continued, adding that fixed income’s lack of penetration in SMSFs is a “problem”.

“And this comes back again to the notion of a slowing number of SMSF trustees using financial advisers,” he said. “[Trustees are] not getting an explanation and understanding of why you use different asset classes for different purposes.”

Tahn Sharpe is a Sydney-based financial services journalist with a background in financial planning. He writes on advice, superannuation, investment, banking and insurance issues, is a certified SMSF Adviser and holds an Advanced Diploma of Financial Planning. Contact at [email protected]
One comment on “SMSF advice ‘not hitting the mark’”
  1. Avatar Lance Meikle

    Great research and thank you for sharing it. Like any survey, it’s all about asking the right question to get to the guts of the issue. SMSF or not, the real issues are two fold: 1) affordability 2) time

    1) personal advice is simply not affordable (in the main). Every trustee would love to have access to a specialist for $2,000 p.a however, caring and compliant advice around SIS and Corp’s Act, needs to sit circa $10,000 p.a

    2) The time it takes to be able to provide compliant, personal advice is out of hand and Trustees simply can’t understand why when they can use voice platforms, URL search and get answers to simple questions quickly. Whilst all stakeholders around SMSF and financial planning stand on their soapbox and ‘how good we are and how our advice will help’, Trustees and the public aren’t bothered with, nor want to pay for, time and paperwork so that boxed can get ticked.

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