SMSF numbers still strong

Oksana Patron

8 June 2023

The number of Self-Managed Super Funds (SMSFs) remained strong in the past year, with the historically lowest wind-down rate in over 10 years as investors “desired more control over investments”.

According to the Vanguard/ Investments Trends 2023 Self-Managed Super Fund Report, there were only approximately 9,000 closing their SMSFs in 2022, down from over 16,000 the previous year.

However, the use of financial advisers has stagnated over the past three years with only 27% of trustees indicating they sought advice in the past year and, at the same time, the number of SMSFs without a financial adviser and with unmet advice needs continued to increase at a rapid rate (270k in 2023, up from 235k in 2022).

The study also found the key differences between advised and unadvised SMSFs when it came to identifying their biggest areas of need, with advised SMSFs having identified their biggest advice need as finding good buying opportunities, while unadvised trustees pointed to a need for strategic advice and support to understand changes in regulation.

Also, one in five SMSFs who did not yet use an adviser was open to seeking financial advice in the future, with female trustees in particular signalling a greater appetite to seek an adviser, in addition to those entering the transition-to-retirement phase.

“At the heart of many SMSF trustees is their desire for control and autonomy. The research shows that trustees are increasingly interested in taking control of their investments as they seek greater transparency, flexibility, and the ability to tailor their investment strategy to their unique needs,” Balaji Gopal, Head of Financial Adviser Services, Vanguard Australia, said.

As far as asset allocation trends were concerned, one in five SMSFs acknowledged that the prevailing economic conditions had a significant impact on their approach in selecting investments, while over a third of SMSFs indicated an increased allocation to cash and cash products.

“It is typical to see increased allocation to defensive assets such as fixed income or cash products during uncertain times. With interest rates rising, the data suggests SMSFs are favouring assets that they see as low risk, with trustees now allocating 22% of their assets to cash products,” Gopal said.

“However we believe Australians saving for retirement should take a longer term view and avoid reacting to short term market conditions. It’s not unwise to have cash reserves in a portfolio but that should form part of a broader diversified and risk adjusted approach, rather than a tactical decision” he said.

While diversification, time savings and access to active management remained the primary reasons for SMSFs choosing to invest in managed funds, a growing choice driver was the ability to access specific sectors.

“Investing in managed funds provides investors with a powerful tool to diversify their portfolio without the high costs and risks associated with buying individual shares.

“However, it is important for investors to conduct thorough research into their investments, including costs, exposures, and risks, in addition to evaluating performance,” Gopal warned.