Results prove critics wrong: SMSF not so conservative

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Although the main criticism of SMSF is that the funds are too conservative, surprisingly the results of a report on asset allocation say otherwise.

The perception that Self Managed Superannuation Funds (SMSFs) have too much focus on cash and terms deposit isn’t necessarily true when looking at the results of a Mercer report for the Financial Services Council (FSC).

The new analysis actually shows that SMSF have an allocation to growth assets such as property and equities of at least 55% – this is based on the assumption that half of the trusts and managed investments are invested in these types of assets.

Graeme Colley, the director Technical and Professional Standards for SMSF Professionals’ Association of Australia Limited (SPAA) told Wealth Professional the results of the report are positive.

“You can take away that [SMSF] are not as conservative as some critics are saying, and they do have a lot of volatility there,” he said. “I think there’s greater knowledge in the area. We’re seeing an improvement in advisers’ understanding of how SMSFs work. As people start to understand risk better, they will take more risks to meet their circumstances.”

The report also asserted that SMSF were unique to Australia and not comparable to other big funds.

Part of the reason that there is a high allocation of cash and term deposits is because members of SMSFs were more likely to be older and in a draw-down phase, it said.

Colley welcomed the statements.

“The best thing that came out of the report was that SMSFs are different, and comparing them to bigger funds is a bit like comparing apples and oranges,” he said.
There is definitely a generational aspect to the structure of SMSFs, he continued: Those in their 20s and 30s are looking for greater risk, whereas people much older tend to want higher levels of cash in the fund.

“Financial advisers need to be aware that people are gaining knowledge and [work out] how they are going to understand what the next move of the client is.  Also how from a generational point of view the client will use [SMSF],” said Colley.

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