How independent minded are SMSF members?
13 October 2014
A study of SMSF members by Susan Thorp, professor of finance and superannuation at the University of Technology, Sydney has found that the average SMSF member is likely to be less “highly numerate” than the average member of a big super fund. But they are more financially numerate and more knowledgeable of the rules surrounding super. The SMSF trustee is also likely to be more trusting of financial services professionals, perhaps to the point of naivety.
The study, which is yet to be completed, is based on a statistical sample of more than 1,000 fund members, split almost evenly between SMSFs and APRA-regulated super funds.
An intriguiing aspect of the study is how trusting SMSFs are of financial professionals. DIY super is supposed to be a way for superannunats to take control of their own deciions. But how much do they in reality?:
"The study calls into question whether a stated desire by SMSF members to be “hands on” with their super actually plays out in practice.
Thorp, who recently accepted a chair at the University of Sydney, said the SMSF members had a positive view of financial professionals, whereas non-SMSF members regarded financial professionals “with considerable distrust”. She said the SMSF member tended to be more risk tolerant, slightly better educated (notwithstanding being less likely to be highly numerate) and less distrusting of financial professionals, showing “perhaps some naivety”.
She said that the common aim to be more hands-on with the management of the investments was limited in its actual expression. About one-third of the SMSF members got investment advice, one-third got administration advice and one-third monitoring advice. However, 40 per cent reported that they spent less than one hour a week monitoring and administering their investments. Another 40 per cent reported they spent less than one day a month on monitoring and administration.
“So what appears to be a common motivation doesn’t seem to be playing out in practice,” she said."
The study also found that property was not a strong target for SMSFs:
"The top motivators for setting up an SMSF in order of importance, according to the study, were: to choose the investments myself; minimize tax; have a variety of assets; manage the fund myself; purchase property; transition to retirement; choose individual equities, choose high-income investments; obtain lower fees."
What emerges from these findings is that many of the assumptions about SMSFs may not be true. They may rely more on financial professionals because they have more to do with them. Or they may just be naive, as Thorp implies. After all, most DIY super fund members are not trained in finance. SMSF members may be 'taking control' by setting up their own super, then promptly handing back the control to their financial adviser. Given the recent controversies with financial advice, it could be a concern. The best answer is for SMSF members to become familiar with the basics of finance and investment in areas such as diversification and risk reward analysis.
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