Turf War
The battle ground for superannuation is shifting.
The savvy super funds have recognised that their war is no longer with each other but rather with the self-managed super sector, which remains the fastest growing and largest part of the superannuation market.
Recent research by CoreData revealed that one third of super fund members (33.3%) would like to set up their own SMSF in the future.
This is a considerable portion of the market, and since people inclined towards SMSFs tend to be wealthy, the impact of these high balance account holders withdrawing from their funds would be rather substantial.
We know from past research that the two main drivers of SMSFs are recommendations (by advisers and accountants) and a desire for control.
Not only do people with SMSFs tend to be wealthy, they also tend to exhibit ‘controller’ tendencies – that is, they take pleasure from data and decision-making and like to be either actively or passively in control of every situation.
The proportion of assets in SMSFs grew apace during the GFC as people became disillusioned with their super returns and attempted to regain control of their tumbling portfolios, under an often misguided assumption that they could do a better job themselves.
While the publicly available data on SMSFs is patchy to say the least, the latest APRA data revealed assets in SMSFs increased 0.5 per cent to $332.3 billion in the year to June 2009, meaning they account for 31 per cent of the $1.07 trillion held in the super system.
Of this total, $613.9 billion is held by APRA-regulated superannuation entities and the remaining $127.2 billion comprises exempt public sector super funds ($91.7 billion) and life office statutory funds ($35.5 billion).
It’s little wonder then that there are a number of players in the financial services market keenly eyeing the sector.
The current rate of growth in the SMSF sector is not sustainable, and indeed we are nearing a tipping point whereby the nature of the SMSF market will shift from asset growth to asset management.
Furthermore, while a large portion of the investments held in SMSFs sat in cash during the GFC, as inflation becomes more of a reality and interest rates rise accordingly, holding cash will become a less attractive proposition – and those that fail to recognise this will suffer a material impact on their SMSF portfolio.
Providers and advisers alike will have to adapt the way in which they service the SMSF market as these shifts occur, while super funds must work hard to stay relevant for those whose balances reach a point at which a SMSF becomes infinitely attractive.
One Comment on “Turf War”
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KK says:
I not sure about your comments re cash and asset allocation. I deal extensively in the sector and find that many SMSF trustees consider that if a 5-6 % return is sufficient for the pension needs, then they can still overweight in cash, with low risk, in a rising interest rate market as they can set aside the excess, in lieu of capital growth, and with little or no risk of capital losses.