The SMSF sector shouldn’t be worried about maximizing growth of the sector, but rather making sure fund members are receiving quality advice, according to a panel discussion.
Opening the SMSF Association National Conference in Melbourne on Wednesday morning, the Thought Leadership Breakfast tackled how big the sector could be.
SMSF Association deputy CEO Peter Burgess said the association doesn’t think about or care about how much the sector can grow but more about that members are doing the right thing.
“For them to do that, they need support and they need good quality advice around their self-managed super funds,” Burgess said.
“If we get that right, in my view, the sector can reach its full potential. If we don’t get that right, there’s always the possibility extra restrictions and conditions will be put on the sector.”
Burgess said the association has worked to address the misconceptions around SMSFs, noting research done in the past few years in conjunction with Rice Warner and the University of Adelaide.
Those two research projects culminated in the finding that $200,000 is a more appropriate threshold to start an SMSF, lower than ASIC’s guidance of $500,000.
“It’s not the case that everyone is suited to a self-managed super fund so there’s always going to be some natural limit to how big our sector can be,” Burgess said.
However, he added the lack of accessible professional advice will be a limiting factor on growth of
the sector.
“We need to make sure that individuals have access to advice,” Burgess said. “Not just advice, but specialist advice. Giving advice to clients of a self-managed super fund is different than to APRA[- regulated] funds.”
On the sidelines of the event, Class CEO Tim Steele told Professional Planner said the term ‘self-managed super fund’ is a misnomer as it can spawn the belief it is entirely self-directed.
“People should be seeking advice as part of their [SMSF]; advice is critical and the removal of the $500,000 reg guidance last year from ASIC is an important enabler for licensees to consider what our policy position now in relation to SMSFs.
Before taking up a leadership role on the product side of the industry, Steele led licensees owned by AMP and NAB.
He said hopefully the new regulatory guidance will open the door for licensees to change their own guidance on SMSFs.
“Understandably, [licensees] probably had a hard cap on that in many licensees because of the reg guidance,” Steele said.
“It’s a brave policy head to have a policy that contradicts that. The removal of the [$500,000 threshold] will be an important enabler to advisers thinking about SMSF as a potential for more clients earlier in life or with smaller balances.”
In control
The key attraction to holding an SMSF is control and UNSW Business School professor Hazel Bateman said for a lot of people “control” means deciding what they’re buying and holding but that is a limited part of an SMSF.
“That’s not really effectively helping people with retirement; that’s where advice comes in,” Bateman said.
“That’s the conversation a lot of people want to have, particularly younger generations, they want to have a deep conversation with advisers about the risk of entering a self-managed super fund.”
Bateman referred to research she was part of which found only 14 per cent of the population thought their individual financial literacy was below average.
She also referred to data from HILDA that found financial literacy peaks at 50 years old and then begins to fall.
“Combined with that is the self-confidence to make financial decisions is shown to increase so you get this real mismatch,” Bateman said.
Steady as she goes
The keynote theme of the breakfast was about how big the SMSF sector could be and kicking off the discussion was a reference to an article published by the Australian Financial Review which said SMSF “accounts plunge as big super fights back”.
Investment Trends head of research Irene Guiamatsia warned against relying to heavily on data to make quick judgements because trends take a while to settle. “Be cautious about making conclusions about any decline.”
Heffron Consulting managing director Meg Heffron said the SMSF sector shouldn’t have steady growth.
“We should see ups and downs because that just shows the system is working,” Heffron said.
“Innovation is coming from SMSFs, big funds are catching up and naturally SMSFs will innovate around something else.”
Data presented by Class at the start of the session showed there are now over 600,000 SMSFs in total (peaking at 603,449), which was attributed to a decline in wind-ups.
Total number of SMSFs finally cracked the 600K milestone in September 2022, reaching an all time high of 603,449.
Millennials (born between 1982 and 2000) continue to lead on SMSF establishments and account for 38 per cent of newly-established funds.
Gen X (1964 to 1982) were right behind at 36 per cent, while Baby Boomers (1946 to 1964) account for a quarter.