The explosion of DIY super has caught the super industry by surprise. The amount of funds under management in SMSFs is approaching $600 billion, about a third of the total pool. It is a major vote of no confidence in the professional fund management industry.
And it is a rational judgement. There is scant evidence that fund managers outperform the market for any length of time. Worse, the more they charge, the worse they tend to perform.
The flood of money into DIY super is not likely to change any time soon. But the industry funds are responding in a different way to retail funds, as the AFR points out. Instead of attacking the SMSFs (some derisively refer to them as 'selfies'), they are joining them:
"A number of industry funds have adopted a different approach: allowing members to create their own direct investment portfolio rather than accept the managed investments they have traditionally offered.
This is because industry funds increasingly regard themselves as large financial institutions and don’t want their members to go to another fund just because they don’t provide a particular service, suggests Ian Fryer of super researcher Chant West.
So they now allow members who believe they have the skills to choose direct investments to do so within a large fund environment.
The direct-choice investments they offer are pretty much the same: any shares from the top 300 companies on the Australian sharemarket, any choices from the growing offering of sharemarket-listed exchange-traded funds, and a range of term deposits. Cash is another investment option.
A reader who has researched a couple of the large funds’ direct investment options asks about the significance of their statements that, while members gain benefits from share investments such as capital gains, dividend payments and franking credits, the investments themselves are legally owned by the trustee. Consequently the members have no direct rights or interests in any of the shares they hold within the DIY investment option. What are the implications of this?
Suzanne Mackenzie of Adelaide-based DMAW Lawyers reckons industry and large fund trustees want to ensure that no member who chooses the direct investment option is under any impression they own the shares, the exchange traded funds or the term deposits that can be invested in via the choices."
The AFR has provided a table of the players:
It certainly makes more sense to offer superannuants greater control over their investments. It is the desire for more control that led to the surge in SMSFs in the first place.