Desperately seeking DIY super funders

Nest egg

Just like many Australian business owners, self-managed superannuation funds (SMSFs) rock when it comes to responding to change.

The latest annual review by the Australian Tax Office, for FYE 2011, provides the good news that SMSFs often out-performed the larger retail funds in tough investment conditions.

Little wonder that the data also shows that this type of superannuation structure remains popular. At June 30, 2011, there were 456,472 SMSFs with 867,863 members.

These people often have superannuation balances averaging $827,000 (although half have assets under $500,000) and nearly 70% of funds are run by two members (mostly husbands and wives).

Not surprisingly, SMSFs are often favoured by high net investors or well-established business owners, who like the control, flexibility and tax advantages that the SMSF may bring.

According to the ATO, 81% of trustees are aged over 45, and three-quarters of the SMSF population are under 65 years old. The gender split is 54% men and 46% women, and most fund members reside in NSW and Victoria.

According to the SMSF Professionals’ Association of Australia (SPAA), one of the most active emergent groups to join the SMSF push is young people under the age of 35. This group had become more interested in the possibilities of self managed super since the GFC, the Association observes.

Ironically, those who currently hold the biggest slice of the SMSF pie – the boomers, the children of the 60s – are now all earnestly worrying about markets, portfolio allocations and returns.

But this clique (who embraced ‘far out’ things such as bubble cars, psychedelic music and mod fashion as teens) should be used to riding the tiger of change.

What next?

The numbers speak for themselves: SMSFs are here to stay.

Right now, SMSFs represent $430 billion, representing 7% of the member universe. And by 2017, SMSFs funds under management are forecast to reach $1 trillion.

Little wonder that recent Morningstar SMSF events were so well attended by trustees (who run the SMSFs) and SMSF members. These sessions looked at investment trends, various forecasts, products and strategies. What the audience clearly wanted to know is: what’s next in terms of portfolio moves?

As veteran Tony Rumble observed, you can’t control investment markets, but you can control risk, tax, and costs.

Rumble showed the allocations by The Harvard Endowment Fund, which made a 21% return in 2011 despite desperate markets. For 2012, this fund was increasing its exposure on commodities and emerging markets equities, and dropping back on bonds – both domestic and international.

Of course, a lot depends upon the scenarios set by this fund.

Look before you leap

At the Morningstar presentation, Vincent Lo Blanco, Director, BlackRock Investment Management, warned investors to watch the signposts of China, Europe, the US and the global banking sector for direction.

Mr Lo Blanco said there’s still a real and present danger that the Euro crisis will continue to spin out of control, and unleash further stagnation.

The point about these events is that trustees have an urgent appetite for information regarding their SMSFs, and want to stay updated even if they’re time poor.

Most trustees earn more than non-SMSF members. The ATO says mostly SMSF members earned on average $91,000 a year in 2010 while older ones earn more like six figure salaries (and this doesn’t include non-taxable fund pensions).

And despite the five Acts governing a SMSF, a trust deed plus fact-finding accountants and financial planners, trustees continue to make their superannuation money a priority.

Some super questions to consider

  1. Do you fit the typical profile of a SMSF trustee?
  2. Are you engaged with your super? How do you rate your investment knowledge?
  3. Where will you be investing in FYE2013? And what sort of returns do you anticipate?
  4. What are your employees doing now in terms of super? How can you help them become better informed?