Investing in property might be a factor driving actor interest in starting an SMSF, but Investment Trends research shows overall the sector is well diversified.
The ‘2024 Vanguard/Investment Trends Self Managed Super Fund Report’ found 30 per cent of those surveyed want to set up an SMSF to invest property.
Investment Trends head of research Irene Guiamatsia says property is a big attractor to creating an SMSF, but not something that’s easy to do.
“If you have to borrow money to make your investment then you face a whole bunch of hurdles,” Guiamatsia says.
“That explains, we believe, the transition between the large appetite that exists among potential SMSFs. When you look at what actual SMSFs are doing around property it’s not as singularly concentrated in property as what you would have thought, based on the intention.”
But despite SMSF trustees citing property investment as a key driver in starting an SMSF, the research found all SMSFs, including new ones, are in fact well diversified.
Newly established ETFs are over-allocated to ETFs (13 per cent versus 8 per cent among all SMSFs) and cash (22 per cent versus 18 per cent).
The largest holdings for newly established ETFs are cash and cash products (22 per cent), property (14 per cent), and direct shares and ETFs (tied at 13 per cent).
All SMSFs are largely weighted to direct shares (27 per cent), cash (18 per cent), and property and managed funds (9 per cent each).
Guiamatsia says products like ETFs and managed funds have done a strong job diversifying SMSFs portfolios.
“The fact SMSFs are using more ETFs as a default diversifying instrument is actually really encouraging for the whole sector,” Guiamatsia says.
A lack of diversification in SMSF investments has been an area of concern for advisers in AFCA determinations.
But while the sector is well diversified it isn’t advisers leading the way, as the proportion of advised SMSFs continues to trend down from 27 per cent last year to 23 per cent, while only 17 per cent of newly established SMSFs are advised.
The research found 17 per cent of advised SMSFs were established at the suggestion of an adviser.
In 2024, 40 per cent of newly established SMSFs surveyed cited internet research as the main driver of setting up a fund, up 26 per cent from the previous year.
A recommendation from friends or colleagues was the next cited reason at 30 per cent, up from 26 per cent the previous year.
When it comes to advice, SMSF trustees are more frequently looking for “validator” or “delegator” arrangements which advisers need to consider.
The research found 39 per cent of advised SMSFs rely on a validator arrangement (a client who works with an adviser to validate their ideas) while 11 per cent rely on a delegator (a client who wants to cede control of decision making).
Guiamatsia says an example of a delegator could be a doctor because they’re likely to be time- poor and want someone to handle their affairs on their behalf.
“They’re happy not to be consulted, just go ahead and do it,” Guiamatsia says.
When it comes to starting an SMSF, 70 per cent cite control as the reason. Guiamatsia says this is contrary to how the advice process works, which is to identify goals first, with the adviser making investment decisions secondary to that.
“Penetration of advice [among SMSFs] is not very high still, in fact it’s maybe declining at a slightly higher pace than it is in the general population,” Guiamatsia says.
“The industry really needs to grapple with the ‘why’ because it’s not a lack of wanting [advice].”
The research found advice needs for SMSF contribution strategies, identifying undervalued assets, protecting assets, investing for regular income streams and ETFs have reduced over the last few years.
ASIC announced earlier this year at the SMSF Association National Conference a review into SMSF advice, a year after releasing an information sheet to guide industry obligations.
The number of SMSFs established last calendar year was 29,007, bring the total to more than 615,000.
Last calendar year saw 9483 SMSFs being wound up, the fewest in a year since 2013 when 10,700 SMSFs were wound up. In 2022 there were 15,154 winds ups, and the highest number since 2010 was 23,272 wind-ups, in 2017.
