How the SMSF sector is driving growth in superannuation
assets and ETFs in particular
Peter Hogan Head of Technical - SMSF Association
March 2017
The SMSF Association is an independent organisation focussed on informing, educating, empowering and advocating for all Australians who self manage their superannuation. We believe that every Australian has the right to control their own destiny, and to create a good quality of life in retirement. Further to that, we believe better outcomes arise when professional advisors and trustees are armed with the best and latest information, especially in the growing and sometimes complex world of SMSFs.
Presenter bio
Peter Hogan
Head of Technical
SMSF Association
► Peter Hogan - Head of Technical SMSF Association
► Peter, who has joined the Association as Head of Technical, is one of Australia’s foremost SMSF specialists, having worked in the sector over many years. A lawyer by training, he cut his teeth in the ATO before joining some of Australia’s largest financial institutions to work in key superannuation, investment and taxation roles. His enormous industry experience and knowledge, especially as they pertain to tax issues, means he is in constant demand on the SMSF speaking circuit. Away from the world of SMSFs, he is a keen weekend golfer when he is not providing a taxi service to junior sporting events. Peter is an SMSF Association Specialist Adviser and former Chair and National Board member of the Association.
Growth in SMSF assets
ATO Data as of December 2016
$650 billion in total SMSF assets
$1.17 million average SMSF size
$595,000 average member balance
585,000 SMSFs 1.1 million trustees
Market share of 30% of total superannuation market of $2.2 trillion
Compares to retail funds (28.2%), industry funds (24.8%), public sector funds (11.8%) and corporate funds (2.85%)
Growth in SMSF assets
ATO Data as of December 2016
Asset allocation concentrated in three asset classes
30.3% in direct Australian shares
24.8% in cash & term deposits
15.4% in direct Australian property
These percentages have been largely steady over long periods
ATO Data as of June 2004
Total SMSF assets $128 billion
31% in direct Australian shares
23.1% in cash & term deposits
12.2% in direct property
The role of ETFS to date
SMSF trustees have been slow to pick up on ETFs
Largely an advised investment strategy
SMSFs use ETFs for international exposure more so than non-SMSF investors
SMSFs use ETFs for exposure to Australian shares but less so than non-SMSF investors
(Recent ASX Data presented at SMSFA National Conference February 2017)
SMSF market offers considerable opportunity for ETFs
Opportunities for ETFS
SMSF direct exposure to international markets less than 1%
Higher where there is a financial adviser involved
Direct investment in international shares still problematic
ETFs offer a traded, transparent alternative to direct international market
ETFs are also used for exposure to Australian shares and Australian fixed income by SMSF trustees (Recent ASX Data presented at SMSFA National
Conference February 2017)
Investing in the SMSF context
Critical that a SMSF has an investment strategy
Should always reflect the actual investments
Must also take into account the need for insurance
Can be changed as often as is needed
Is set by trustees and so should be achievable
Should be regularly reviewed
Objectives, strategy, review and any changes should be minuted
Investing In The SMSF Context
Investment objectives and strategy should be both meaningful and measurable
Must be able to justify decisions made in setting investment strategy
Cannot be penalised for making bad decisions about investments
Recovery action against any person involved in investment outside investment strategy where money is lost as a consequence
Investing in the SMSF context
Investment objectives set the long term investment returns expected by trustees
Investment strategy describes how trustees intend to invest SMSF money in order to achieve those long term goals
Performance of investments must be regularly reviewed against the objectives to assess relative performance
Either objectives or strategy can be changed at any time
Investing in the SMSF context
Investment strategy describes how trustees intend to invest SMSF money in order to achieve those long term goals
Generally described as percentage allocation to asset classes
Ranges usually provided Benchmarking is not usual Referencing “managed funds”, “ETFs” or “private unit
trusts” for example is neither “meaningful” nor “measurable” & so not recommended
Law requires “regular” review Descriptive document which will often contain trustees
reasons for investing or not investing in a particular asset class
Investing in the SMSF context
Member direction in relation to investment choice is acceptable
Different members can choose to invest their account balance differently to other members
Complicates administration & accounts preparation but is otherwise OK
Different to large funds which have investment-style choice only
Conclusions
SMSFs represent a significant percentage of the Australian superannuation market by size
Asset allocation is generally concentrated
ETFs have a small share of that market at present
SMSF trustees use ETFs to access asset classes where they have had traditionally low exposure eg international shares & Australian fixed interest
Arguing the case for diversification successfully to SMSF trustees either through intermediaries or directly offers a real opportunity
Disclaimer
© SMSF Association 2017
This information is general in nature and intended to be used as a guide only.