SMSFundamentals | Feb 23 2012
By Greg Peel
It has been one year since FNArena launched its new section of the website dedicated more specifically to Self-Managed Super Fund (SMSF) trustees, or “smurfs” as we call them. FNArena introduced the service last year on the release of the first Russell/SPAA survey on the SMSF industry, and that survey revealed some interesting facts.
See "Welcome To SMSFundamentals".
The second annual Russell/SPAA survey left no doubt the SMSF cohort of the investment industry remains the fastest growing, indeed now exponentially so. Of total SMSFs established, 48.7% have now been established for over seven years. One in ten survey respondents will establish a SMSF in the next 2-5 years. (1406 Australian consumers were surveyed of which 337 were smurfs and 174 counted as high net worth individuals without SMSFs. Separately 513 financial advisers/accountants were surveyed).
It would be easy to assume that Baby Boomers would be the most keen to set up an SMSF with retirement looming but only 10.5% of Boomers surveyed indicated an intention to establish an SMSF compared to 13.7% of Gen-Xers and 10.0% of Gen-Yers. There is still plenty of growth to come in the smurf market.
Financial advisers would also do well to take note of the high correlation between people owning their own business and then similarly choosing to manage their own retirement funds. Some 38.8% of advisers surveyed noted more than half their client base were SME owners, up from 22.5% claiming so last year. According to the ABS there are over 2 million SMEs in Australia.
In the period since the GFC it is a well documented fact that investors now hold substantial, even record, levels of cash in their portfolios – a fact also borne out by the many periodic FNArena surveys. Initially the holding of cash was based mostly on the fear factor and there was a strong element of simply holding that cash “on the sidelines” temporarily until the dust settled. But with European issues prevalent more recently, smurfs are becoming more inclined simply to hold cash as a deliberate risk reduction strategy given extreme volatility in equities.
Australian equity investment still dominates the average smurf portfolio with 43.5% of value invested in 2011, up from 42.6% in 2010. Cash holdings have nevertheless increased to 25.6% in 2011 from 23.1% in 2010. That's true cash, such as a term deposit or cash management trust, and does not include fixed interest investments. It is interesting to note that the once typical allocation of a benchmark “balanced” portfolio included only 10% cash.
For probably three years now, many a global market analyst has cited large amounts of “cash on the sidelines” as a reason to be bullish the stock market, on the assumption that cash all had to pour back into equities sooner or later. We can perhaps, however, blame the Greeks in suggesting such view is losing its logical weight. After a strong bounce-back rally in 2009, 2010 started well until Greece hit the frame. When we finally thought Greece had been dealt with 2011 started well, only to see Europe fall apart once more.
Now 2012 has also started well so far, and Greece has been dealt with yet again. But investors sitting with cash “on the sidelines” would have watched in horror as those investors prepared to join the stock market game once more – no doubt already battle scarred from 2008 – were chewed up and spat out, in both the first and second halves. Those sidelines, it seems, are quite a comfy place to be if not as exciting, with the promise of a warm jacket and a hot cup of cocoa to be had.
To that end, those citing equities as being too volatile as a reason to hold cash instead grew to a whopping 32.4% in 2011 from only 17.0% in 2010. Those holding cash but still looking for the right time to run onto the field fell to 44.3% compared to 52.0%. Those simply believing cash investment is a good means of reducing risk grew to 48.9% but only from 47.6%. (Note that survey respondents could tick more than one box.)
Now girls, what are you up to? You may not be able to read a road map or stack the dishwasher efficiently but you are meant to be the celebrated multi-taskers and dare I say possibly more intelligent on the whole than us neanderthals, yet it was with notable shame that SPAA CEO Andrea Slattery had to point out at the press conference that 43.2% of female smurfs believe they will fall short of their retirement income needs compared to 27.1% of males. Or is that pragmatism over bravado? And females suggest they only need $1200 per week on average compared to $1700 for males. I'm sorry, but you can drink a lot of beers for the price of a trip to the hairdresser.
“Women are the inevitable growth segment for the SMSF sector in future,” Slattery suggested, “The gap in both their perceived knowledge and understanding in achieving their desired retirement income compared to their male counterparts makes females an ideal target for the professional advice industry”.
I must note here that, anecdotally, FNArena seems very popular with female subscribers if correspondence is anything to go by.
Which brings us to what we might call the “nature” of smurfs. Russell/SPAA decided last year that smurfs could be divided into three general categories: the “controllers”, the “coach seekers” and the “outsourcers”.
In 2010 controllers made up about 40% of smurfs. These are investors who make all their own decisions without seeking outside help. This, of course, defines to some extent the concept of an SMSF in the first place. But over the past decade the growth in SMSFs has reflected not as much an “I can do better myself” attitude as an “I am sick of being ripped off by the big funds” attitude which has led investors towards a SMSF even if with a sense of trepidation. Of these, in 2010 some 14% were “outsourcers” who while managing an SMSF actually handed all investment decisions over to a professional. In a sense this contradicts the concept of an SMSF, but then the feeling of being ripped off previously has cut deep.
The balance of 25% of smurfs in 2010 were “coach seekers”. These are investors keen to make their own decisions but given limited experience are keen to seek “mentoring” rather than straight up allocation advice. One might say they don't want to be told what to do, but they do want to be informed so that the most suitable decisions can be made. In the 2011 survey, 17.3% of financial advisers noted increasing demand from controllers but 38.8% noted increasing demand from coach seekers.
Taking the opportunity here for a shameless plug, without having ever adopted the expression specifically, FNArena's mission has always been to be a “coach” to the “coach seekers” (while not being a licenced financial adviser). FNArena is fully independent of any broking house, fund manager or media giant and seeks to pull apart extensive market research collated every day and distill it down to an easy to understand assessment of the investment markets and where the most appropriate opportunities may lay.
As a last word I'll leave you with the following table which may help smurfs better appreciate how one's own experience as a self-manager stacks up against that of peers.
Technical limitations
If you are reading this story through a third party distribution channel and you cannot see charts included, we apologise, but technical limitations are to blame.
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