The second deadly sin of self managed super – Packaging

Packaging (or product bundling) is a favourite of the financial services industry, as it is for many other industries. Credit card with your mortgage, insurance with your super, it’s pretty standard stuff. The product provider sells more, and the consumer gets additional (hopefully useful!) products without having to think too hard. So it’s easy to see why self managed super looks like such a good opportunity to create packaged products.

When you’re running a self managed super fund, at the very least, you need a trust deed, a bank account, something to keep track of the money and an audit. At the most, you could include all this, plus software, various investments, insurance, accounting, compliance, estate planning, asset valuations, the list goes on. And why wouldn’t an SMSF trustee want to get everything in a single bundle? I mean, that’s much easier than making lots of separate decisions yourself isn’t it? But there in lies the rub: SMSF trustees generally DO want to make all the decisions themselves! Otherwise they would just be a member of a big super fund.

For example, let’s look at investments. You might think that for a 40yo self managed super trustee, the best thing would be a single product, that combines a number of managed funds and direct shares to create a quality portfolio. You could charge a rolled up fee, nice and transparent, and everyone will be happy. Except these sort of products have almost zero take-up by SMSFs. So what is going on? Let’s unpick this a bit further. It’s highly likely that SMSF trustees are very interested in how you would put such a portfolio together; they will want to know why you chose those particular funds and how you go about constructing a portfolio for maximum effectiveness. And then they will likely go off and do something similar themselves.

The question is, how do you get paid for your time and effort in educating the trustee? And the answer, to my mind, is to support the trustee to construct the portfolio themselves, using a range of products. As the product provider, you might not gain the complete portfolio, but you will have a smaller share of a larger pie. The average SMSF has more than $1million in investments. Compare this to the average industry or retail super fund, both of which have average balances of less than $30,000. Granted, industry and retail member balances are easier to access, as usually the investment manager negotiates with the super fund, rather than individual members, but there’s something there, don’t you think?

There are of course a few instances where bundling does make sense – for instance online trading that is bundled with a bank account, and book keeping and compliance services. But generally, if product and service providers want to have success with SMSF trustees, they need to think about how the trustee wants to interact with them, and then determine how best to make that a profitable interaction, not the other way around.