A self-managed movement

A great many of our readers have a self-managed fund and have become immune to the regular lambasting of self-managed super funds in the daily media. It turns out that most of the media reports were wrong.

The latest statistics show that rather than being a declining institution, self-managed funds received $800 million from industry and retail funds in the quarter to March 2019. Overall the inflow exceeded $1 billion. But we are also seeing dramatic changes to the composition to SMSFs. 

The people who set up SMSFs a decade or two ago are still holding their funds, even though some are having difficulty with the management. There is a huge influx of new trustees in the 35-44 age bracket and they clearly see SMSFs as the way to manage their savings for retirement. However, we’re also seeing a worthwhile increase in the 25-34 age group and the 45-49 age group. 

Behind that influx of money and new funds into the self-managed movement there is considerable turmoil in the advice business. Now is a very good time to step back and analyse whether your advisor is providing for your needs and whether that advisor is charging too much for their services. 

Back to SMSFs, and all the press publicity that showed they were underperforming is total hogwash. In the latest taxation statistics covering the 2016-17 year, overall, SMSFs achieved 10.2 per cent. This pips the Australian Prudential Regulation Authority (APRA) funds. That is a repeat of the 2015-16 result, a year of low returns. In the previous three years the APRA funds did better than SMSFs but not by a large margin.

I clearly don’t know the returns for 2017-18 or 2018-19. Several industry funds may have done very well with their infrastructure investments. Industry funds were also able to do much better than retail funds so they may have also outperformed SMSFs. And, as has been reported by Eureka Report recently, Hostplus is offering SMSFs access to its infrastructure investments. It is worth underlining that, in total, SMSFs are larger than either industry or the retail funds, although industry and retail funds when naturally combined are bigger than the self-managed fund movement. 

I know I have said this before but if you are elderly at least think about inviting your children into your fund to help in your transition. This is particularly important if you are feeling stressed but still want to maintain a SMSF. 

That brings us back to the question of advice and the significant revolution taking place in this area.

Leaving aside investments, if your savings level is ebbing around the cut-off to receive a partial government pension, then you need expert advice on how to structure your savings. That advice can come from your accountant if the accountant has the necessary knowledge. It is worth paying for that advice on an hourly basis and I get very sad when I discover that vulnerable people pay, say, one per cent of their assets for advice to maximise their pension when these advisers should be running an hourly fee model instead.

Many people have relied on the wealth management and financial planning offshoots of large funds. The big retail funds are now moving to a position where they won’t provide detailed personal advice unless you have a large amount of money. The industry funds have never been very good with advice but they are trying to up their game. If you are after structural advice you should check with your accountant.

Rule number one, if you have assets or income that makes you possibly eligible for a government pension, get good advice and get charged by the hour. When it comes to your investment portfolio, everyone is in a different situation. However, in an environment when returns are becoming tougher to achieve because of lower interest rates, one per cent of assets becomes a very high charge unless the advisor is really adding value with strategic investment selections. If your fund is earning eight per cent or lower and you are paying one per cent to your advisor that is not a very satisfactory situation. When funds were earning double-digit numbers, then one per cent does not seem outlandish assuming advisers are providing good value.

The position of each of my readers is different. This should simply prompt you to step back and think logically about what is happening to your funds. 

During the week the Baby Bunting report caught my attention. Now, I must confess, our grandchildren have gone well beyond the Baby Bunting stage, so I have not been to one of their stores in a long time. I was fascinated when the bank credit squeeze was in full force that a customer was phoned by the bank because his credit card had shown a couple of Baby Bunting purchases. The bank wanted to know whether that meant that there was a baby on the way which would jeopardise loan repayments.

It was outrageous but it implanted Baby Bunting in my mind. This is a retail organisation that has worked out how to link its fast-growing online market with its in-store sales, the key to modern retailing. I think the latest results of Baby Bunting will cause groups like Kmart, Target as well as Amazon to look more carefully at Baby Bunting techniques so there are possibly more battles to come. As JB Hi-Fi has shown, these giants are not invincible. As I have mentioned in these columns previously, I have been in JB Hi-Fi stores and been really surprised by the number of young people and the high level of service. It was no surprise to me that the latest profit was good. 

Again, always remember where you have shares in a consumer-orientated company to personally check the level of service and performance, when and where possible. It can often be a better indicator than reports by investment analysts.

The other report that caught my eye during the week was Domain which showed Domain underperformed compared to REA Group because Domain’s market is concentrated in Sydney and Melbourne where the volume decline was at its sharpest. What I am seeing in the housing market now is an increase in investor interest. People look at the interest rates that banks are offering to start considering buying an investment property once more. There is not an avalanche of interest at this stage, but people are certainly looking. This activity will ultimately underpin the market, and in the event of another rate fall, as the market is predicting, then interest in property will become much firmer.