Much of the wealth amassed in the self-managed superannuation sector has been directly rolled out of industry and retail funds. Should collective funds clearly differentiate themselves from this new competitor, or adapt some of its attributes as they develop strategies to retain members? SIMON MUMME and PHILIPPA YELLAND report.

The universe of self-managed superannuation can be a mysterious one for traditional trustees. For starters, there is no such thing as a standard asset allocation among self-managed super funds (SMSFs). George Boubouras, head of investment strategy at UBS Wealth Management, has never encountered a client he could categorise as being ‘typical’. “I’ve seen portfolios with 90 per cent cash, or 100 per cent equities, and everything in between,” he says. According to the head of the SMSF Professionals Association of Australia, Andrea Slattery, roughly half of the $410 billion in self-managed super is invested in equities, up to 25 per cent in cash or fixed income, 20 per cent in property and the remainder in “other things”.

There are currently about 434,000 SMSFs in existence and, as the costs of running one of the vehicles continues to fall – they are now becoming cost-effective at balances of about $100,000, Slattery says – more growth is expected. In another boon for the sector, the Cooper Review of the superannuation system did not crack down on SMSFs but found them to be generally well-run by trustees and was broadly supportive of the vehicles. The sector continues to attract wealthy Australians. Presenting to the FEAL Fund Executives Forum last month, Andrew Baker from Tria Capital Partners said the ongoing strength of all collective superannuation vehicles were threatened by the “apparently unending rise” of SMSFs. If current industry growth rates continue, Tria projects SMSFs will grow to $748 billion within a $2.2 trillion system in 2015. Meanwhile, retail funds are expected to grow from $337 billion to $522 billion, and industry funds from $219 billion to $400 billion. “SMSFs are sucking out highvalue members and asset growth, which is intrinsic to performance.

They are a common enemy for retail and industry funds,” Baker says. The shift into SMSFs is driven by members’ desire for greater control over their investments and, Baker argues, because collective funds are still not doing a good enough job of engagement. The do-it-yourself approach can also be a convenient way for people to centralise their super around a dominant asset, such as shares in a private company. In addition, traditional superannuation providers have found it difficult to match the administrative flexibility needed to accommodate the more esoteric investments made by these trustees, such as artworks and other valuables. But funds and service providers are moving to dam the leakage of large balances into SMSFs. Retail administration provider OneVue, best known for its separately managed account (SMA) capabilities, has begun targeting not-for-profit super funds experiencing outflows from the top 5 per cent of their memberships by account balance.

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