Sniping at self-managed funds a super blooper

A CRITICISM often levelled at self-managed super funds by commercial super funds and the managed funds industry has been the lack of active investing by SMSF trustees.

A CRITICISM often levelled at self-managed super funds by commercial super funds and the managed funds industry has been the lack of active investing by SMSF trustees.

This claim is often supported by quoting the high levels of cash held by SMSFs. A report on SMSFs this week by Macquarie Bank and the Self-Managed Super Fund Professionals Association of Australia proves how unfounded this criticism is.

Macquarie is well placed to provide an insight into cash holdings of SMSFs as about 25 per cent of the more than 468,000 SMSFs have cash management accounts with the bank. The high cash account balances of SMSFs is based on their cash holdings at June 30 each year. An analysis of the cash management accounts held by SMSF customers of Macquarie over a four-year period paints a different picture of the cash holdings of SMSFs.

Unlike industry and commercial super funds, in which super contributions are received regularly, with the contributions being invested throughout the year in various asset categories, SMSF members tend to make large contributions in June each year.

SMSF trustees tend to take a hands-on approach to investing and, rather than as happens with industry and commercial funds where the contributions are automatically invested, they carefully consider where they are going to invest and do this over the months following the end of the financial year.

This means the high cash account balances apply only at the end of each financial year, while by September they have been reduced substantially.

Another finding in the report provides further evidence of just how out of touch the managed funds sector is and why it is so keen to criticise.

Comparing how cash was invested by SMSFs in 2006 and 2011, the report shows trustees are more actively involved in investing than is often portrayed. Over that five-year period, amounts invested by SMSFs in shares, geared property, and cash have increased while amounts invested in managed funds have decreased.

This finding goes to the heart of why people set up SMSFs. It is all about a desire to have control over what is for most people their largest financial asset and an aversion for paying fees to someone who manages their super investments and loses money.

The main focus of the joint report was the attitude to super by different generations. The report drew on four main sources:

A comprehensive research study and investigation into Australians' life and financial decision-making conducted in September last year.

A survey of 2132 SMSF investors carried out between March and April this year, with additional analysis commissioned by Macquarie.

Aggregated data from Macquarie cash management accounts.

Aggregated data from the Macquarie Wrap investment platform.

The study into Australians' financial decision-making involved a large-scale qualitative research program of 12 group discussions across Australia before a detailed online survey of 1600 people.

The findings were broken down into four generational groups: Generation Y, born after 1978 Generation X, born between 1965 and 1978 baby boomers, born between 1946 and 1964 and the Silent Generation, for all those born before 1946.

The report made both expected and unexpected findings. Generations X and Y are more likely to communicate and look for advice online, while the older generations prefer to seek advice face to face. Unexpectedly, the Silent Generation have a high allocation of direct shares, even though they are nearly all in pension phase and would therefore be expected to be more conservative.

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