Research into self-managed super funds has given an insight into the attitudes of members of this fastest growing sector of the superannuation industry. It also provides a big reason why traditional financial planners have been so eager to criticise SMSFs.
The study was done by Rice Warner, an actuarial firm specialising in research for the financial services industry, on behalf of the Self-Managed Super Fund Professionals Association of Australia and fund manager Vanguard.
As part of the research, SPAA members were encouraged to send a survey containing 69 questions to their SMSF clients.
The questions covered such topics as the benefits and risks of an SMSF, investment choices and product awareness, retirement planning and expenditure, and financial advice.
The answers to the questions on financial advice produced some of the most interesting results.
For many years, SMSF trustees have been criticised by the product-focused sector of the financial services industry for holding too much cash and not being proactive enough in managing their super funds' investments.
The findings of the survey contradicted this criticism.
Forty per cent of the trustees that responded review their fund often more than fortnightly, with 51 per cent reviewing their fund more than quarterly.
One of the reasons for the baseless criticism of SMSFs by some sectors of the financial services industry can be explained by another finding of the survey. This related to the reasons why trustees of SMSFs were not happy with the competency of financial advisers.
The main reasons given by trustees for being dissatisfied with financial advice included:
Advisers were more interested in the products they sold than the return for clients.
The advice given was too simple and general in nature and the cost could not be justified.
The financial advice provided by advice firms owned by fund managers was highly conflicted by what was on the approved list and platforms.
The survey also found a direct link between the level of satisfaction with advice and its cost. Seventy-five per cent of trustees recognised they needed strategic advice, rather than product-oriented advice, and were prepared to pay more than $2000 for it.
Another reason for SMSF trustees being critical of financial planners is they have a higher level of financial literacy.
Unlike many members of industry and commercial public offer funds, who often seek limited and simple advice, SMSF trustees have above-average scores on financial literacy, understand high-level investment concepts, and have a good understanding of risk and return.
When it comes to SMSF trustees getting advice, they clearly don't want this to be based on product sales, which are more linked to commissions and remuneration strategies for the adviser, but want their adviser to provide high-level strategic advice and have a knowledge and skill level greater than their own.
There were no surprises in the results of the survey when it came to the key benefits of an SMSF and what trustees regard as their biggest risk.
The major benefits of an SMSF are the level of control that the members have and the flexibility when it comes to investments.
The biggest risk has nothing to do with advice or investment performance, but has everything to do with the constant meddling by successive federal governments with superannuation. Of the trustees responding to the survey, 83 per cent were concerned about possible changes to superannuation or taxation law.
Frequently Asked Questions about this Article…
What was the Rice Warner study about SMSFs and who commissioned it?
The research was conducted by actuarial firm Rice Warner on behalf of the Self-Managed Super Fund Professionals Association (SPAA) of Australia and fund manager Vanguard to survey attitudes and behaviours of SMSF members.
How many questions were in the SMSF survey and who responded?
SPAA members were asked to send a 69-question survey to their SMSF clients, with responses coming from trustees of self-managed super funds about investments, retirement planning and financial advice.
How often do SMSF trustees review their fund according to the survey?
The survey found SMSF trustees review their fund frequently: 40% reported reviewing their fund often, more than fortnightly, and 51% reviewed their fund more than quarterly.
What do SMSF trustees see as the main benefits of a self-managed super fund?
Trustees cited control and investment flexibility as the major benefits of an SMSF—being able to directly manage investment choices and tailor strategies to their needs.
What is the biggest risk to SMSFs identified by trustees in the research?
The biggest risk trustees identified was political and regulatory uncertainty: 83% were concerned about potential changes to superannuation or taxation law due to frequent government meddling.
Why are many SMSF trustees dissatisfied with traditional financial advice?
Trustees reported dissatisfaction because advisers often seemed more focused on selling products than client returns, offered advice that was too simple or generic for the cost, and advice from firms owned by fund managers was seen as highly conflicted.
Do SMSF trustees want product-focused advice or strategic advice, and how much are they willing to pay?
The survey found 75% of trustees recognised they needed strategic, high-level advice rather than product-oriented recommendations, and many were prepared to pay more than $2,000 for that strategic advice.
How does the financial literacy of SMSF trustees compare to other superannuation members?
SMSF trustees generally have above-average financial literacy: they understand high-level investment concepts and risk/return, which explains why they prefer advisers with greater knowledge and strategic capability rather than simple product sales.
Call 1300 880 160
Start a chat
Schedule a call
