Lies, damn lies and SMSFs

There’s something about self-managed super that just seems to bring out the worst in people. And a complete disregard for the facts.

I’ve had the pleasure of working in many areas of banking and wealth, including retail super, financial planning,  platforms, managed funds, insurance, mortgages and retail banking, and I’ve never seen anything quite like it. I suspect it’s something to do with $560 billion and 1 million people who just refuse to get with the program – i.e. invest in managed funds and platforms via a financial adviser. But even that is a bit of a furphy.

According to the Australian Taxation Office (ATO), $78 billion of the roughly $560 billion in SMSF monies is held in managed funds. That’s right folks: billion, not million. That’s a whole lot of people and a whole lot of money. Roughly $81,000 per SMSF trustee, in fact, which is probably more than the average non-SMSF investor has in managed funds. I think half of the issue here is that most managed funds are sold through platforms, who generally don’t include SMSF reports as part of their reporting to the fund managers, which means the fund managers don’t realise that a large proportion of their FUA is in fact SMSF monies. Personally, I think fund managers should be requesting this sort of information, especially given that so many are so keen to make inroads into the SMSF market.

Here’s another fact for you: less than one in five SMSF trustees are under the age of 45; in fact, just 17.8% are. (Not 40%, as I saw quoted this morning!) 17.8% of all SMSF trustees is 171,000 people. Not a huge number in terms of overall population. More SMSFs are being opened by younger people, and intent is high, but intent is not the same as action. I might plan to do any number of things, but how many will I actually do?

On the other hand, it’s fantastic when people under the age of 45 become interested in their retirement planning, because, as we all know, the longer you’re in the game, the better the likely outcome. And there’s nothing like the shock of realising that your retirement lifestyle isn’t going to be very exciting to spur you into action. The important thing here is to be having the conversation. Which, of course, is difficult when most people under the age of 45 don’t have a planner and don’t read their super statements.

There’s an interesting debate going on at the moment as to whether all super statements should include an estimate of retirement income as part of the standard requirements. Although this is only ever going to be an estimate and may be off-the-mark by miles, I do think it helps to

focus the mind on the real reason for superannuation: to provide a retirement income. It’s not “who retires with the biggest pot”; it’s “who retires with the right retirement income”. The recent FSC/ING report into super confidence suggests that, while 83% of people agree that “super is essential to providing a comfortable retirement”, only 64% believe that “the super system provides stability and certainty”. That’s quite a gap, and it suggests that the current reporting and constant changes in legislation and regulation aren’t doing us any favours.

And on the subject of retirement planning, let’s talk about the ‘productisation’ of retirement income. Can’t get enough people to invest in your retirement products? Why not convince the government that they can’t be trusted and that they should hand over a good portion of their life savings to a company instead? And that’s exactly what quite a few companies and lobby groups are currently trying to do. A change of this magnitude would also have the added benefit (if you’re not currently making much money from the SMSF sector) of making self-managed super less appealing. Win-win, right? Except that it’s not.

I haven’t seen a shred of evidence to suggest that retirees just blow all their cash, or that ‘productisation’ will produce a better outcome for anyone except the product providers. It would be extremely disappointing if the very premise of our system - that people do best when in charge of their own retirement planning - was undermined by the needs of a few companies to maximise their profits. Not that there’s anything wrong with delivering a great return for shareholders, but I do think that this is a step too far. Different options for managing retirement income should stand up on their own merits, and not be more or less favourable because a few people were able to lobby politicians successfully.

Then there’s another of my personal favourites: the ongoing battle between financial advisers and accountants. According to the naysayers on both sides, financial planners are just product salespeople, and accountants are sticks-in-the-mud who don’t have a clue what proper strategic advice is. But the truth is a whole lot more nuanced than that.

Many financial planners I talk to are looking to either hire, buy or JV with an accounting business, because they can see the opportunities. And more and more accountants are either hiring financial planners or becoming fully licensed themselves (i.e. becoming financial planners). Because at the end of the day, most accountants and financial planners I talk to just want to do the best for their clients and their business.

Yes, planners and accountants come to the table with differing outlooks and differing skill-sets, but as any decent strategy or management text will tell you, bringing differing views to the table is key to propelling a company forward. If everyone thinks the same way, well, internal change is pretty unlikely in a world where constant change has become the norm. And as they say, stupidity is doing the same thing every day and expecting a different outcome.

I think that this industry needs to spend less time dreaming up products and more time ensuring that consumers get exceptionally good strategic advice. And understand its value. And are willing to pay properly for said excellent advice. There are thousands of very smart people in the superannuation industry; imagine what we could achieve if that was the goal instead of simply building and selling products. We’re all so used to having the lovely super guarantee deliver money into our products that it’s going to take an awfully big change regarding this, but I think we can do it.

Self-managed super is not a new phenomenon. It’s been around since the 1980s, and now more than 1 million Australians have a self-managed super fund. That’s around 1 in every 19 adults in Australia. It’s the topic du jour on account of the huge sums of money and sheer number of people involved. But that shouldn’t stop our industry from treating this sector with the intellectual rigour and sensible approach we use with the rest of our industry. Less hysterics, more constructive discussion, please!