The self-managed super fund market is one of the fastest-growing investment segments, now accounting for nearly one-third of the superannuation dollars in Australia. However, while a few advisers have been able to make SMSFs a very profitable part of their business, most struggle. What makes the difference?
New research carried out by Investment Trends for Vanguard may shed some light. The research firm surveyed 1,927 current and aspiring SMSF investors, as well as 417 planners, in April this year – and found some interesting conclusions about SMSF trends and how to tap into them.
1. Shares are in, cash is out
SMSF fund allocations to direct shares has hit its highest point in the last six years, reaching 45% of total allocation. Meanwhile, allocation to cash and cash products like bonds fell for the first time since 2007. In addition, an overwhelming majority of SMSF holders are planning to invest in shares in the next 12 months. SMSF holders want out of cash, and they’re doing it now.
This presents a major opportunity for you to tap into this shift from one asset class to another right now.
2. ETFs are on the rise
While only accounting for a small percentage of invested funds, there has been a 28% increase in the number of SMSFs with an ETF in the last year. The number of SMSFs planning to invest in ETFs has also increased by 54% in the last year.
The relatively low costs associated with ETFs and the ability to easily diversify a portfolio with them is driving this growth – a burgeoning appetite that you can sate.
3. SMSFs want control – but advice, too
Lower costs may be a major driver for SMSF holders, but gaining more control over investment is an even stronger driver. This can present challenges for advisers, especially when dealing with clients who may think they can pick stocks better than the professionals.
However, there’s also a clear demand for advice. The research revealed that 218,000 SMSFS were willing to pay a combined total of $430m per annum to unmet advice needs. However, this isn’t necessarily advice around security selection or asset allocation. Rather, it’s advice around issues such as inheritance and estate planning, borrowing with SMSFs, buying investment properties and tax planning.
If you can fulfil these niches with SMSF clients, then you stand to reap the rewards.
4. Sleeping with the enemy
Investment Trends’ research revealed a telling distinction between advisers. While three-quarters advise on SMSFs, only 20% were classed as specialists (advisers with more than 20 SMSF clients).
These specialists derived a significantly higher proportion of practice revenue from SMSFs – around half, in fact (compared to 19% for ‘generalists’). The distinction? Those who found it easier to acquire or retain SMSF clients were more likely to work for an accounting firm or have relationships with a number of accounting firms.
While accountants are often seen as competition when it comes to SMSF advice, it seems that you may be better off forging links with the bean-counters, rather than being at loggerheads with them.
5. A different approach
Finally, the research found that the advisers who find it easier to acquire SMSF clients attribute this to clients valuing good advice and because SMSFs allow clients to have more control. Meanwhile, those who find it difficult to attract SMSF clients say that it’s because clients want too much control over their investments – as well as blaming competition from accountants.
This suggests that the advisers who are being successful are embracing their SMSF clients’ desire for control over their investments, and providing useful advice that complements their clients’ proactive stance. Therefore, if you are struggling with SMSFs, it may be worth going back to basics and rethinking your value proposition in relation to SMSF clients.