SMSF use of financial advisers has stagnated over the past three years, despite the bulk of funds admitting there is some requirement for better advice, according to the latest research from Investment Trends.
The findings, revealed in the latest SMSF report produced with Vanguard, found only 27 per cent of trustees sought financial advice.
The number of SMSFs without a financial adviser and with unmet advice needs further increased from 270,000 in 2023, up from 235,000 in 2022.
However, the report noted inheritance, estate planning, pension strategies, regulatory changes and tax planning are particular areas that present opportunities for financial advisers to step in and play the role of financial coach.
The findings, revealed in the latest SMSF report produced with Vanguard, highlighted key areas of opportunity for advisers to establish conversations with clients that admit they need financial advice.
Around one-in-five SMSFs who don’t use an adviser are open to seeking financial advice in the future, particularly female-led trustees and those entering the transition-to-retirement phase.
Investment Trends head of research Irene Guiamatsia said those establishing SMSFs highlighted a desire for control and the need to be involved in investment decisions concerning their super contributions, whether it was the choice of specific investments or shares, or to directly influence the broader asset allocation decisions.
In their own words, SMSF investors explain the desire for more control as the ability to be involved in investment decisions around their superannuation, to choose specific stocks, make quicker decisions in moving money in and out of financial investments and to directly influence asset allocation, Guiamatsia said during a media briefing explaining the findings on Wednesday morning.
The research also found that SMSFs who rate their level of financial literacy as ‘excellent’ show a greater level of awareness and understanding of the Quality of Advice Review and its recommendations.
Taking back control
Vanguard Australia head of financial adviser services Balaji Gopal said at the heart of many SMSF trustees is their desire for control and autonomy.
“The research shows that trustees are increasingly interested in taking control of their investments as they seek greater transparency, flexibility and the ability to tailor their investment strategy to their unique needs,” Gopal said.
SMSF assets have shown resilience through a turbulent year, with assets totalling $881 million at December 2022, a slight year-on-year decrease.
The annual rate of SMSF establishments has decreased slightly in the past year by 60 basis points in the past year. The overall number of SMSFs held steady, thanks to low windups, according to the ATO SMSF quarterly statistics report. It reveals there were 25,020 new SMSFs established and 9166 SMSF fund wind ups in 2022.
The average age and average wealth of newly-established SMSFs have both increased. The latest cohort report an average balance at establishment of $300,000, up from $220,000 the previous year.
Looking ahead, SMSFs intend to invest in a wide range of asset classes, most often blue chip domestic shares, ETFs and global equities. Demand for term deposits has significantly increased.
Appetite for income
Speaking to Professional Planner in the lead up to the report, Guiamatsia said there has been a shift of focus by Australian SMSF investors and their advisers towards income generation, as opposed to capital growth.
“It’s worth recalling that the demographics is skewed to the high end of the age spectrum, with more than half of the $800 billion in SMSF assets in pension phase,” she said.
“The shift in investment objectives then manifests in asset allocation choices, with more money now flowing into cash, high yielding savings and fixed income products.”
Guiamatsia said appetite for ESG alignment has gone from strength to strength, dispelling the myth that investors might perceive responsible investment considerations are a trade off against returns.
On one hand, high inflation and cost of living pressures would have eroded discretionary spending capabilities, which could deter from using “expensive” advisers, she said.
“On the other hand, with the quantum of regulatory change [legislated and proposed], including the proposed $3 million threshold, it would seem common sense for trustees to seek the guidance of experts to clearly understand the potential implications for them,” she said.
The other impact is the broader economic challenges facing Australians as cost-of-living pressures could potentially impact the number of SMSFs in the market.
