A- A A+

How independent minded are SMSF members?

12 October 2014  |  Portfolio

MindA 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.

 

 

 



Similar articles from Portfolio

The psychology of control

 | 10/28/2014

ControlSMSF super funds are usually set up so trustees can gain greater control over what happens to them. So when markets become volatile and it is apparent that nobody controls them, what are the psychological effects?


Three investment strategies used by the wealthy

 | 10/6/2014

RichRich investors are not much different from ordinary investors. They tend to have three approaches, each of which has very different implications.


Are fund managers getting a free lunch?

 | 10/4/2014

LunchGuaranteed inflows, no transparency, no penalty if things go wrong. Australia's fund managers may be getting extremely well rewarded. Trouble is, there is no way of knowing.


Does it pay to employ active investment managers?

 | 7/23/2014

ManagersHolding on to investments can make a lot of sense. There has to be a very good reason to pay extra to employ an active manager.


Things to look for in financial advisors

 | 7/6/2014

ChecklistThe rise of SMSFs is based on a recognition of a basic reality. Most advisers are essentially sales people and clients are, in a fundamental sense, on their own. It is a case of buyer beware -- and buyer taking personal responsibility.


 

Subscribe

Subscribe to the Personal Super Investor weekly email to keep abreast of developments in SMSF law and investment markets. SMSF investors looking to improve investment returns from shares, property, cash or other specialised investments, will find the PSI weekly newsletter an invaluable resource.

Subscribe now »

Disclaimer

The contents of this website are of a general nature only and have not been prepared to take into account any particular investor's objectives, financial situation or particular needs. Our content is not intended to be advice and must not be relied upon as such. You should seek independent advice tailored to your specific circumstances prior to making any decisions. Personal Super Investor does not provide financial product advice or recommend any financial products: Where this website or it derived newsletter/electronic publication refers to a particular financial product, whether it be within our editorial or a 3rd party advertising, advertising promotion or advertorial, then you should obtain a Product Disclosure Statement (PDS) relating to that product and consider the PDS before making any decision about whether to acquire the product. We also recommend that you should seek professional advice from a financial adviser before making any decision to purchase any financial product referred to on this website. We do not make any representation or warranty that any material on the Personal Super Investor website will be reliable, accurate or complete, nor do we accept any responsibility arising in any way from errors or omissions of our content or any content provided by any advertiser appearing the Personal Super Investor website. We will not be liable for loss resulting from any action or decision by you in reliance on the Material (whether editorial or advertising) on the Personal Super Investor website, nor any interruption, delay in operation or transmission, virus, communications failure, Internet access difficulties, or malfunction in your equipment or software. By using the site you acknowledge that we are not responsible for, and accept no liability in relation to any content contained on the site that you may use, including any other users’ use of the Personal Super Investor website in any circumstance. You use the Personal Super Investor website at your sole risk.