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It’s time to industrialise every SMSF

The time is long gone when it was acceptable for any SMSF to be administered by a suburban accountant with a spread sheet and a collection of letters and notices in a shoe box. One million trustees of half a million SMSFs holding half a trillion dollars of assets – the sector is now a major political and financial force. But with power and profile comes responsibility, and administration and management of SMSFs must be as robust and accurate as possible. If trustees have the right to control their own super fund, they must ensure it is managed honestly, efficiently and in conformity with a vast array of rules and regulations. Every fund must be ‘industrial strength’.

The rise and rise of SMSFs

When Paul Keating wrote for the second edition of Cuffelinks, he made an extraordinary admission:

“When we laid the foundations for the current superannuation system in the 1991 Budget, I never expected Self Managed Super Funds to become the largest segment of super. They were almost an afterthought added to the legislation as a replacement for defined benefit schemes.”

That ‘afterthought’ is now an irresistible force. SMSFs are a remarkable feature of the Australian superannuation landscape. Although the ATO data is effectively two years old*, the March 2013 statistical report shows the following (and don’t make too much of March’s lower growth):

Table 1. ATO Self-managed super fund statistical report, March 2013

*The latest ATO data is only an estimate. The ATO states: The number of members of SMSFs is estimated based on SMSF return form data, with the estimates for June 2012 extrapolated from 2010-11 data.

How is a half a trillion dollars administered?

The largest banks and wealth management companies have allowed SMSFs to become a $500 billion industry administered by others, notably thousands of suburban accountants, supported by software provided by a few relatively small players. There is little or no SMSF administration done by the massive ‘industrialised’ systems of the largest financial institutions in the country.

There are several explanations for this. Until recently, technology had not advanced to such a degree where the largest banks and wealth managers thought they could administer the funds efficiently. SMSF administration was little more than a ‘cottage industry’, dominated by accountants as part of an overall tax management relationship. It is claimed that the largest SMSF administrator in the country is Cavendish, with 5,000 funds and 110 employees. This is only 1% of the market. Some large accounting firms which specialise in SMSF service have only a few hundred funds, and many accountants as few as a dozen. AMP has embarked on a major tilt at SMSFs, but at the moment, across all their businesses, administer about 10,000 funds (including Cavendish).

The second excuse relies on the reasons SMSFs are established: the desire for control, the ability to select specific stocks, to save money on fees, the perceived poor performance of large super funds, and the advice of accountants. A quick tick of these reasons explains much of the lack of impact by large institutions. Investing in a traditional retail or industry super fund does not give control over investments or stock selection, with the perception of high fees without decent performance. Little wonder when the friendly family accountant comes along and offers to do all the administration for $2,000 a year, removing $5,000 in management fees, that many investors make the jump.

Most large institutions seem to think that offering a bank account and link to their in-house broker is an SMSF solution. Take a look at the branches or websites of National, CBA and Westpac and their related wealth businesses. Each will claim they have an ‘SMSF Service’, but they crucially miss the establishment and administration services. For example, go into a National Bank branch and pick up their prettily-boxed package called ‘Retire in Comfort’. There is nothing in there on SMSFs. Type ‘SMSF’ into NAB’s search engine and it takes you to deposit accounts, borrowing and remarkable insights such as “an SMSF can own a farming property but it cannot operate a farming business.” But where is the entire SMSF package? Amazingly, they actually send customers away:

“You could use a lawyer who specialises in this area or purchase a deed from an SMSF service provider that has been ‘pre-prepared’ by legal experts.”

The other major banks are the same, with the possible exception of ANZ which offers an administration solution through Super Concepts. AMP has established the AMP SMSF unit, comprising Cavendish, SuperIQ, Ascend and Multiport. And the main response from the industry funds is to offer super wraps, such as Australian Super and its Member Direct offer. But they are not SMSFs.

Developments in SMSF software

In the last couple of years, there have been significant advances in the quality and availability of SMSF administration software. Barely a month passes without a new entrant announcing its product. The more established players such as Class Super, BGL, SuperIQ and Supermate continuously refine their products. This software is used by administrators and supports the better back offices of thousands of accountants, advisers and dedicated administration services.

The best software stores all supporting material electronically, including lengthy legal documents such as the trust deed. It ensures documents like the investment policy are regularly updated. Direct feeds into the software from stock brokers and the ASX record share transactions as they occur, bank account records are updated immediately and all dividends and interest payments are automated. There should be none of the scrambling around a year after 30 June, trying to identify transactions. Records are updated real time, and trustees can see their fund balances, transactions and investments on a screen at any time.

Technology has now reached the point where large players can offer full service solutions, and they are becoming more serious about moving into SMSF administration.

What are the shortcomings at the moment?

There are still thousands of SMSF administrators who have cobbled together their service using various automated and manual sources. Every SMSF is unique, and the administrators strain under the back office workload of identifying every transaction and keeping abreast of rapidly changing, complex regulations. There are an estimated 12,000 SMSF auditors but 50% of them perform less than 10 audits a year – hardly a workload that fosters the required expertise. It is usually the SMSF administrator or accountant who chooses the auditor, which can lead to a cosy relationship, with the client paying an annual audit fee of around $500. Until the recent tightening of regulations, there was often a piecemeal approach to valuing assets, including property.

With predominantly inexperienced trustees unaware of their responsibilities, the potential for SMSFs to breach rules is obvious. The more common violations are loans to related parties, using trust assets for personal purposes, failing to lodge on time and exceeding contribution caps. As part of an annual audit, approved auditors must submit Auditor Contravention Reports (ACRs) for prescribed SMSF contraventions to the ATO. In the year to 30 June 2012, there were 8,125 SMSFs that had ACRs lodged containing 19,823 contraventions. It is not acceptable for a tax-advantaged structure to have such potential for non-compliance.

It is clear that ASIC is worried about some SMSF activities. ASIC commissioner Peter Kell recently warned that the regulator did not want SMSFs to become the ‘vehicle of choice’ of property spruikers. The former superannuation minister, Nick Sherry, has warned that low balance SMSFs need to watch the significant fixed costs, and that many trustees have no idea of their obligations.

Deloitte Access Economics recently wrote a report for ASFA called ‘Maximising Superannuation Capital’, and highlighted:

  • SMSFs are usually managed at a family level, with one person as the primary manager. If that person dies, leaves the family or becomes incapacitated, the other trustees may not have the skills to continue SMSF management.
  • The asset allocation of an SMSF moving from accumulation to pension as the members age takes a lot of skill to manage. There may also be problems of high fixed costs as the fund reduces in value.
  • One million members represent a massive voter block, and they are more difficult to influence than large funds, which can be directed by regulators to follow a certain course. The regulation of SMSFs by the ATO is also different. Public industry and retail funds are regulated by the Australian Prudential Regulatory Authority, while the ATO relies on auditors to control compliance issues.

Penalties for non-compliance or breaches    

From 1 July 2013, the ATO will fine trustees directly, and potentially their advisers and accountants, for breaches in the management of their SMSF. Depending on the type of non-compliance, fines start at $850 for relatively minor offenses, and could be as high as $10,200 for a breach such as lending to a member. Fines cannot be paid for by, or claimed as an expense of, the fund but must be paid by the trustee, and it appears that the ATO has no discretion whether to charge the fine or not. Fines will apply for minor breaches, such as not maintaining records correctly or failing to advise of fund changes. Many will think these are innocent oversights which might previously have been corrected without penalty. In addition, new rules have been introduced on valuing off-market assets. The incentive to maintain a complying SMSF is enormous.

The large institutions are not even attracting the investments

The large banks and wealth managers should be servicing the SMSF space better because they are not only missing the administration role, but they are not managing the investments. Most large retail and industry super funds monitor their inflows by source and outflows by destination, and they are all losing money to SMSFs. Industry consultant, Tria Partners, estimates that 50,000 Australians leave public funds for SMSFs each year.

The ATO’s estimated SMSF asset allocation is:

  • 37% listed shares and trusts
  • 28% cash and term deposits
  • 15% real estate, mainly non-residential
  • 9% unlisted trusts and 5% ‘other managed investments’.

So the massive managed fund industry, comprising perhaps 200 product providers and once the dominant players in wealth management, takes less than 15% of SMSF assets in the ‘managed fund’ space. They must address their entire SMSF strategy.

In summary, we have an SMSF administrative system holding one-third of all superannuation and the retirement dreams of a million Australians being managed predominantly by small players in Australian finance. For those who choose to use it, SMSF software is improving rapidly, but most trustees are unlikely to fully understand their legal obligations and requirements of their trust deed. Many are in for a shock when they learn of the severity of the new fines for breaches of the even the most minor of the SMSF regulations.

It would be a far more secure and robust sector if the administrative solutions had minimum ‘industrial strength’ standards, such as real-time updates, online tracking of every investment, and a complete history of trustee decisions. It would also inspire more confidence if it were backed by the capital and resources of Australia’s largest financial institutions.

Scott Vallve
February 28, 2014

As a director of a SMSF trustee, an accountant and having previously worked as a Para-Planner for AMP my insight into this issue is multi-partisan.

As a trustee I find the SMSF structure to be time consuming and inefficient compared to being in a managed fund run by a financial planner. There is an increased risk of non compliance and extremely severe penalties for failure, additionally, the expertise of a new SMSF Trustee for administration is very low and requires 100's of hours of training and study to become competent. Many trustees probably never become competent and then rely entirely on their accountant.

There are many additional costs that must be incurred to manage compliance, setup and investment that are traditionally borne by the institutions and the fund managers on their APL. A competitive managed fund may have lower fees than the calculated cost of a SMSF when taking into account margins for foreign exchange, bank fees, brokerage, advice, accounting and legal update fees, SMSF setup, tax compliance, audit and ASIC registration fees.

The clear benefit of a SMSF is aligning management incentives to member benefits. That is what is lacking in managed funds and financial planning, a clear cut performance incentive and accountability for negative results.

The focus on reducing compliance risk and fit for life needs rather than maximizing returns that drives financial planners is a result of low performance incentives and no penalties for failure regarding poor performance and negative returns. Having a fee structure that is completely performance based would change the way that financial advice was delivered to be more aligned with the way SMSF trustees manage their funds.

From an accounting point of view the Sis act, Related Party rules and the administration of a SMSF are at times a time consuming, restrictive and troublesome trap for trustees. There is a lot of misinformation about the way the law works and many people do not fully understand it, forcing trustees to obtain regular and expensive professional legal and accounting advice to validate their proposed investment strategies. It is not a guaranteed pot of gold that is set and forget. Anyone considering making a new SMSF should do thorough research into what is involved in administering a SMSF before doing a roll over or setting one up. The reality is that it takes 100's of hours per year.

Chris Appleyard
September 05, 2013

What an excellent article and following chain of comments. It is my belief that this fragmented, cottage industry, currently facilitated by understaffed, under skilled accountancy firms needs consolidation. In the background, the administration should be watertight, efficient, instant and encompass the SIS rules automatically. The 'platform' that the underlying client then 'behaves' within, should be user friendly and provide access to any and all investments that are compliant.

If we simply listen to the clients (which everyone seems to forget to do!), they want SOME control, choice, lower fees, advice and simplicity. I believe an SMSF is the only vertical to truly embody this. Let's try and make some changes. We are all too intelligent to keep going on the way we are with archaic systems that are expensive and product centric.

Norman Donato
August 19, 2013

I would be interested to see whether there are any industry statistics to see the performance (financial returns) of the SMSF compared to funds under professional management. I'm sure they must be available somewhere (although I'm not sure how accurate they may be).

Whilst financial returns and performance (over the long term) may not be a true indication of the needs for that sector to show "industrial strength", it would be a measure that may test the proposition that that sector of the superannuation industry needs to show industrial strength. If the returns over the long term are not there, the question is why?

I also think that the ability for professional managers to tailor their services to the SMSF sector of the market presents a great opportunity.

Harry Chemay
August 19, 2013

Graham, you certainly seemed to have struck a nerve with this article. One month and 15 comments later (and counting) your sensible call for the SMSF sector to be more administratively robust appears as divisive as when it first appeared.

Why might this be so? Because the SMSF sector is shaping up as the next key 'battleground' for revenue growth in financial services, and the various stakeholder 'combatants' are either preparing to defend their turf or mount a frontal assault. SMSF-land is fast becoming a $500bn 'demarcation dispute' with various interest groups positioning themselves for maximum leverage, and by extension, revenue extraction from the 1 million odd SMSF members out there.

The SMSF sector is that scrawny kid who was always picked last in the footy team, waiting patiently for respect that never came from the 'big boys' who had little time for the undersized. The kid went off and stacked on some size. Who knew the kid would grow so big, so fast? Now as big as the biggest, and growing faster than them, he is being wooed by every team in the country. Every team wants a touch of the magic he possesses. Not to mention the potential 'rivers of gold' he might deliver. Or so it appears.

I'd be happy to be proven wrong, but it didn't look like many of the 15 odd comments in response to your article came from actual SMSF trustees/members. Where is their voice in the increasingly acrimonious SMSF debate as between Accountants, Planners, Fund Managers and large institutions? Is there an agency problem here?
By Harry Chemay

Alun Stevens
August 07, 2013

The benefit of real time updates is not that it might support some manic desire by trustees to watch their investments every minute of the day. It is that the value of their investments is always up to date so that whenever the fancy should take them, they will be able to get an up to date picture. This saves a lot of mucking around (and cost) in call centres.

Real time for superannuation systems, however, generally means daily at best. I can't think of a superannuation system that actually works in real time.

The only systems I know that work in real time are the stock market systems and some aspects of banking systems. This is another reason why many SMSF investors use online broking systems. They can get the up to date information they want whenever they want it at very low cost.

And I can add that when I ran an online stock broking business, I had a lot of SMSF investors who did want to know what their investments were worth every day, but I am more than happy to concede that I only dealt with a select group of engaged investors.

Dacian Moses
August 05, 2013

No, it is not time to institutionalise (that is what is meant by the term "industrialise") the self-managed superannuation fund. It is, by its very nature not institutional. This is an area in which I have some experience and I have yet to see a "shoebox". Advice and audit work for SMSF's can be improved. No question there. But until institutions can correctly strike a unit price they should not throw stones.

Allison Macfarlane
August 04, 2013

Thanks Graham for a most informative article. I can see Alun's side of the argument too. What a massive opportunity out there for SMSF administration and advice/service. Being such a large fragmented market of DIY investors, the solution is not necessarily going to be answered by the institutions, thus providing an amazing opportunity for the small business sector of our industry. Will definitely be watching this space!

Alun Stevens
August 04, 2013

Graham, the assessment that the administration of SMSFs is a fragmented business with much of it still a cottage industry is well put. It is also well understood. Having worked quite seriously in and around SMSFs for 30 years, I suspect that this fragmentation won't ever be entirely removed. It is within the nature of the beast that small operators will be able to successfully service small numbers of SMSFs even though their processes are not highly automated.

I think that your denigration of the online broking offers of the big banks as not really being SMSF solutions is misdirected and misinformed. For a significant number of SMSFs these services actually provide a more than adequate service. The point is that they are used in conjunction with an accountant. They provide a full record of all relevant financial transactions in electronic form from which the accountant can produce tax returns etc quite easily. Transaction volumes in SMSFs are actually very low.

By not competing with the accountants, they actually get more of the business from which they are geared to make good profits than if they aggressively tried to do establishments and tax.

I am surprised that you quoted the Deloitte Access Economics paper for ASFA. It is a deeply flawed paper with serious deficiencies of understanding in a number of key aspects of superannuation and beset by trivial, shallow analysis. It is also being used to bolster lobbying in the context of 'Big Superannuation'. Its pronouncements with respect to SMSFs need to be treated with significant scepticism.

Take one example - the supposed problem of changing asset allocation when moving from accumulation to pension which apparently requires 'a lot of skill to manage'. The two implications are that this is a real problem for SMSFs and that they don't have these skills. The fact is the direct opposite. It is not a problem, most SMSFs do it very well, and ALL SMSFs do it better than ANY APRA fund. Snide, shallow, uninformed commentary should not be given oxygen by being republished.

I agree with John regarding managed funds. One of the primary reasons for moving to an SMSF is to escape from these products and their excessive fees and inadequate returns. The institutions are not failing to sell their products to SMSFs because of a failure of their strategy or sales effort. They are failing to sell them because nobody wants them or needs them.

This is actually the biggest issue with respect to AMP's strategy of becoming a dominant SMSF player. A key part appears to be predicated on them getting a share of the investment management margin. My view is that they may get some of it via mechanisms like model portfolios and SMAs, but they will fail if they think they will get it via managed funds except for specialist funds like overseas assets. The products are simply not fit for purpose.

John Hewison
August 04, 2013

What a load of BS.The usual call of the institutions to commoditize everything so they can make a buck. This is regardless of a sorry history of failures over decades and the revolving door of failed fund managers who couldn't cut the mustard when the markets got tough.

Yes the main attraction for the use of SMSFs is control, felxibility and cost control. Is there any wonder in the light of a history of convaluted remuneration deals leading to massive overcharging to the consumer - and for what - pure mediocrity and self serving, mandate driven investment structures.

The notion that institutions should be in control of the investment of SMSFs simply fails to have an understanding of the structure. Anyone who sets up a SMSF and then puts managed finds within it is an idiot! Either adopt a SMSF structure and invest predominantly direct or use a managed structure. There is no sense in mixing the two and incurring multiple strata cost .

My company has managed SMSFs since the 80s and currently manages over 500 SMSFs totalling over $500 million. We have invested in sophisticated IT that manages funds highly efficiently and cost effectively. Whilst I would not pretend for a minute that our clients weren't impacted by the market declines of 2008-09, boy did they make a comeback from 2009 to now. The key issues were flexibility to act, cost control and cash flow management - not to mention personal care anmd attention. None of our clients had a cash flow problem and now, in a low interest rate cycle their cash flow is sensational. Our average return (net after fees) for balanced SMSFs over the past 12 months is 21.7% and average 9% for the past 5 years. What managed fund can match that?

Conversely we have seen billions locked into managed funds that have been literally frozen or had clients locked into an investment mandate that is broken in a market dowturn and a total lack of ability to manage cash flow.

As usual we now see the funds management industry come out with their "flavour of the month" product offerings ( all to little too late) of convaluted managed income generation funds.

Don't kid yourself. The days of the shoe box full of papers is fast disappearing and the SMSF specialists are alive and well. The days of institutions treating the advice profession as their sales force is all but over and the client will be the benefactor.

Ian Kredulis
August 06, 2013

(<em>Editor note. I realise the name and content here has a healthy dose of sarcasm).</em> Wow. If the average balanced SMSFs can deliver 9% pa over the past 5 years, why am I bothering with a clearly under-performing super master trust? It looks like I need to get on the SMSF bandwagon or get left behind. I'd be more than happy to roll my super (and that of my wife) into a new SMSF administered and advised by your company.

Just one thing though. Before I do, could you provide some evidence of that 9% pa return? That way I can do a fair 'like for like' comparison with my current fund, whose balanced option has struggled to deliver 5.5% pa over the 5 years to 30 June. Pathetic.

I'll take it as a given that your IT systems calculate portfolio returns as geometric, or compounding, returns in accordance with globally accepted standards for investment performance reporting.

You also mentioned that the 9% pa was net of fees (and I assume tax). That's handy, as new draft super reporting standards for investment performance will make APRA funds report 'net returns' as time-weighted rates of return, net of investment-related fees, costs and taxes, adjusted for cash flows as they occur.

So could you also provide me with details of the % costs borne by a typical SMSF that achieved a net 9% pa return? That would include all fees, including administration fees, audit fees, brokerage, stamp duty, investment advice fees, advisor investment management (FUM) costs, platform fees where applicable and any 'one off items' such as fees for Trust Deed or Investment Policy Statement updates, or the legal costs of setting up an LRBA structure should I choose to acquire a partially geared property in my SMSF.

The above information will allow me to line up the performance of my current super arrangement with what appears to be a clearly superior choice. I'm sure the results are a mere formality, and look forward to commencing my new SMSF soon.

August 06, 2013

"Our average return (net after fees) for balanced SMSFs over the past 12 months is 21.7% and average 9% for the past 5 years. What managed fund can match that? " (John Hewison)

Like Ian Kredulis (great pseudonym, whoever you are!), I would require more information to be able to fully answer that question. But I think I can have a crack even in the dark and murky waters of claim and counter claim.

In regard to the 5 year numbers, it seems clear to me that the SMSF's you're talking about were underweight shares in 2008 and then re-loaded in 2009. The 5 year numbers for the share market are pretty ordinary - the ASX 200 delivering less than 3% pa (including dividends) over the 5 years to June this year - so avoiding them during their worst period is the most likely strategy you've pursued.

And/or if you're only share investment was something like CBA, which returned about 11% pa.

Strategies like those could easily have generated 9% pa.

You are right to say that most managed funds don't have the flexibility to do that sort of thing. I'm not sure they should be criticised for that, however, because it's not like they've ever promised that they would.

In fact, they'd be breaking the law if they did, given their existing PDS. Most managed funds are structured intentionally for people who want broad and consistent exposures to asset classes, not big and variable market timing bets. They set permitted ranges in their PDS and if they go outside of those ranges they are in serious trouble with the regulators.

Is that an argument for the superiority of SMSF's? Not really.

SMSF Trustees have to set investment strategies and operate within them. (The better SMSF software support packages manage compliance pretty well.) Any SMSF that chose to run a long run asset allocation and not to vary it much, and not to take concentrated stock bets, would have a very similar outcome to the multi-sector balanced funds.

So really you're argument has nothing to do with whether fund managers do a good job or not. You are really just arguing that a tactical process that has the "flexibility to act" is better than a more rigid process. And you are then claiming to be able to add value using such a process. You back this claim up referring to past performance.

You sound just like a fund manager!

What happens, though, if you get one of those calls wrong? There are plenty of investment portfolios, some publicly well known, which have operated with great flexibility - and in selling out of shares in February 2009 managed to ruined the financial position of many of the stakeholders in the portfolio.

Which brings me back to the 1 year returns you quoted. There are actually heaps of managed funds that did just as well, if not better. I count 6 of the multi-sector funds on Colonial First State First Choice wholesale platform that are above 21.7% net return. That 21.7% outcome is darned good. But it's not so good relative to managed funds that I'd keep bragging about having a superior process based on your relative performance.

In this glass house of "performance" and "value add" claims, throwing stones is dangerous.

Ray Backhouse
July 29, 2013

A great article Graham, technology that can be tailored for individual SMSF needs could also incorporate "business rules" that may ultimately assist with the compliance and understandiing of the complex laws of SMSF administration.

Bruce Bennett
July 23, 2013

A SMSF gives investors the option to diversify their portfolio and invest a portion of it in residential property. Whilst other articles have highlighted the danger of this strategy, at times of low interest rates it has several advantages over a superfund that is overweight in equities especially when the fund enters pension phase.

1. Equity investors have no control over the investment decisions of a company's board. For example, pre-school centres might seem like a great investment but when highly geared and poorly managed can fail miserably. Other examples that have destroyed shareholders wealth include Pasminco, Babcok and Brown and Macquarie Office Trust. Even top 100 companies like Alumina, have cost their shareholders money. If you buy an investment unit that you would be prepared to live in yourself it is hard to lose 100% of your investment.

2. There is a high degree of volatility in dividends. Companies would rather cut their dividend than pay out retained earnings. And shareholders of companies such as BHP and Rio Tinto have lost billions through management's poor investments over many years rather than distributing the profits to shareholders. Rental incomes tend to be more consistent throughout the year and increase in line with the cost of living.

3. Companies raising capital are likely to dilute your share of the business. ASX listed companies are in a habit of raising funds by issuing shares to institutions at a discount to the market price to fund acquisitions or major investments. If an SMSF investor has $300k invested in such a company, under the current ASIC rules they can lose $15k-$30k of the value of their holding. A recent example was SCP. When it was spun out of WOW unit holders were limited to the number of extra shares they could buy. Six months later SCP went to institutions to raise $90 million and ASIC's action, not to allow a Share Purchase Plan, diluted the holdings of SMSF investors. If an investment property performs well, a lender is not able to buy it from you at a discount.

One downside of this strategy is that transaction costs are higher on properties than equities, although there is no stamp duty or land tax in New Zealand.

Wayne Stammers
July 19, 2013

Great article on the way SMSF's need to move. With its growth to become the largest sector of Superannuation it must move to a greater level of Industrialisation.

Ben Smythe
July 06, 2013

Very interesting article - there are a couple of additional comments that I would like to add to that article. Firstly SMSF trustees do not respond well when sold products by financial institutions (history is littered with failures of large financial institutions misunderstanding the motivations of SMSF trustees).

If financial institutions interest in SMSFs is to sell products (and in reality that is the fact) then there best bet is to do what AMP is doing and offer an administration service so they are at least "close" to the client when trying to capture say their bank account, term deposit, small cap managed fund exposure, etc.

The other alternative is to provide something that is valued by the SMSF trustee, such as education, insights, etc. Again research tells us that SMSF trustees do value having a sounding board or second opinion and in some cases even a "coach" so if they can tap in that expertise there chances of success will be greatly enhanced.

The reality is that the SMSF administration market is incredibly fragmented and in my opinion without serious acquisitions then no one entity will dominate the space in the next 5 years no matter how "industrialised" their administration solution is when compared to the local accountant's offering.

July 05, 2013

Individuals who setup smsfs not only want control but also advice. Until the banking model changes where customer service is paramount and they arent treated like a number then they will continue to have trouble attracting the smsf client. Are the banks going to advise on the numerous tax planning strategies across their branches ? Good luck they have enough trouble communicating within their own branch let alone across a network. Going to take a long long time before the financial leaders take back what they lost a long time ago

Scott Barlow
July 05, 2013

If you want compliance, institutional management works great. If you want enagement, self-direction works much better.

(Every really good boss knows this...).

Mark Palmer
July 05, 2013

Good article I think one of the other important factors (and Rippoll affirmed this) is that the trustees interests are aligned with the members (because they are one in the same). Unfortunately time after time the institutions have shown they will always have their interests (making a profit) first before the interests of the member.

Additionally, I am advising in this sector also, the ability to manage cash flows without capital gain complications/distortions suffered in widely held funds while maximising franking receipts is a brilliant but simple strategy in itself.

July 04, 2013

Unfortunately Graham the whole point of a lot of the decisions to switch to SMSFs is to get away from the largest financial institutions. Unfortunately we (I work for one of them) have done a poor job of convincing retail clients that we can be trusted to do a better job with their super money than they can. A lot of people have taken the decision too lightly and will be unpleasantly surprised over time, but we can't really blame them for voting with their feet - we haven't been particularly good at working for them in the past.
I actually see the massive leakage of money to SMSFs as a positive in one sense, as it is forcing the big players to re-evaluate the way we have worked in the past and look at fixing some of the structural incompetence we have tolerated in the past. Effectively forcing people away from SMSFs by draconian regulations and penalties isn't necessarily the answer, as that will remove the pressure on instos to lift their game.
Hopefully the rise of SMSF solutions backed by big players in response to the loss of FUM will lead to a best of both worlds, with both better structured insto funds and a more robust SMSF world.


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Investment strategies

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In this environment, safe-haven assets like Government bonds act as a diversifier given the uncorrelated nature to equities during periods of risk-off, while offering a yield above term deposit rates.

Investment strategies

‘Multidiscipline’: the secret of Bezos' and Buffett’s wild success

A key attribute of great investors is the ability to abstract away the specifics of a particular domain, leaving only the important underlying principles upon which great investments can be made.


Keep mandatory super pension drawdowns halved

The Transfer Balance Cap limits the tax concessions available in super pension funds, removing the need for large, compulsory drawdowns. Plus there are no requirements to draw money out of an accumulation fund.


Confession season is upon us: What’s next for equity markets

Companies tend to pre-position weak results ahead of 30 June, leading to earnings downgrades. The next two months will be critical for investors as a shift from ‘great expectations’ to ‘clear explanations’ gets underway.


Australia, the Lucky Country again?

We may have been extremely unlucky with the unforgiving weather plaguing the East Coast of Australia this year. However, on the economic front we are by many measures in a strong position relative to the rest of the world.

Exchange traded products

LIC discounts widening with the market sell-off

Discounts on LICs and LITs vary with market conditions, and many prominent managers have seen the value of their assets fall as well as discount widen. There may be opportunities for gains if discounts narrow.



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