The report shows how trustees and advisers are grappling with the challenges and opportunities posed within the booming sector against a backdrop of turbulent market conditions and regulatory change.
Intimate with Self Managed Superannuation, the benchmark study into the burgeoning SMSF sector, was commissioned by Russell and SPAA and conducted by independent research group CoreData. It surveyed SMSF trustees, non-trustees and professional SMSF advisers during November and December 2011.
Some of the key findings:
High cash allocation here to stay
- Market uncertainty has lead trustees to hoard cash and sit on the sidelines. But rather than waiting for investment opportunities – holding cash is now a deliberate risk reduction strategy. So strong is the focus on risk reduction, it has taken the lead as the key driver of asset allocation, overtaking cost (34.1% in 2010 report vs. 41.2% in 2011) and return (32.4% in 2010 vs. 37.3% in 2011).
- The proportion of SMSF trustees who believe equities are too volatile has doubled to one third (32.4%) this year, up from just 17.0% in 2010. Only 6.3% say they haven’t had time to invest their cash but plan to do so in the coming year, down from 14.4% in 2010.
Finding good professional advice still a challenge for trustees
- More than one third of advisers agree the Future of Financial Advice (FoFA) reforms will lift professional standards for financial advice. However, less than one in five (18.0%) agree consumers will feel more confident they will be getting professional advice services and even fewer (17.1%) agree the reforms will lift consumer confidence in the financial services sector.
Current gender gap could lead to future opportunity
- Despite their more moderate retirement income expectations, two in five female trustees (43.2%) say they will fall short of their target income, compared to only 27.1% of male trustees. The average female trustee anticipated she will need around $1200 per week in retirement, compared to $1700 for the average male trustee.
Increasing demand from ‘coach seeker’ trustees
- The report also details changing trends across each of the core SMSF trustee profiles of ‘coach seeker’, ‘controller’ and ‘outsourcers’, which were identified in last year’s inaugural report.
- Around 70% of advisors believe the profile of the typical SMSF client is changing, with more than one third of these (36.1%) pointing to increasing demand from coach seekers. One in five advisors (17.3%) point to increasing demand from controllers and while the outsourcer segment is unlikely to favour an SMSF structure without professional advice and guidance, this latter segment should not be ruled out.
Future growth likely to come from Generation X/Y and SMEs
- The SMSF vehicle is increasingly attracting a younger demographic. Some 13.7% of Generation X respondents (aged 31 – 45 years) and 10.0% of Generation Y respondents intend to establish an SMSF within the next two years, compared to 10.5% of Baby Boomers.
- Advisers have also ramped up their focus on small business owners with two in five advisers (38.8%) claiming more than 50% of their client base is small to medium sized enterprise owners (SMEs), up from just 22.5% last year. According to the Australian Bureau of Statistics, there are around two million SMEs in Australia, including non-employing enterprises, representing significant growth opportunity for the SMSF market.
Click here to download the report.