While the report, called The SMSF Generations Report, reveals SMSFs are popular with every generation of Australians, it has highlighted that there is no such thing as a typical SMSF investor. There are significant differences in the attitudes, investment priorities and lifestyle aspirations of each age group.

With SMSFs already the largest and fastest growing sector of the Australian superannuation industry, the report emphasises that advisers need to take into account these generational differences when delivering advice to help better meet the needs of investors.

Macquarie Banking and Financial Services Group Analytics Research Manager, Gary Lembit, said that investors across the generations recognise the value of advice when managing their SMSFs, but that advisers should tailor their approach according to life stage to have the greatest impact.

“It is clear that one of the main reasons investors opt for an SMSF is to have greater control and choice over their investments. However, this does not mean they want to be entirely self-directed,” Mr Lembit said.

“As the insights in this report show, SMSF investors across the generations recognise the role financial advisers have to play in providing valuable guidance on their investments. However, through better understanding their clients’ state of mind, advisers can adapt their advice models and learn to communicate in a way that better meets their needs, while articulating the value they can add.”

Despite investors sharing the common reasons for choosing an SMSF, more control and choice over their investments, there is a significant difference between how receptive each generation is to receiving financial advice.

Generation Y, not surprisingly, is generally highly confident about many aspects of their lives, but when it comes to long-term investment decisions, they are less confident than other generations. They are very receptive to advice, but do not seek it, meaning it is important for advisers to develop ways to proactively communicate with this group and help them understand the value of advice.

Generation X is a lot more sceptical about financial advice, but being extremely time poor, they are willing to pay for advice in certain situations, particularly if it helps save time.

The Baby Boomers are increasingly seeking advice, perhaps because of the higher amount in their funds and being closest to retirement, while the Silent Generation (those in retirement) is by far the most likely generation to seek advice.

Andrea Slattery, CEO of SPAA, said that as the number of investors using SMSFs grows, the industry needs to respond by focusing more on what they can do to best service this distinct group.

“We have found time and time again that investors who use SMSFs are the most engaged people in superannuation. They want to make sure their funds perform well and are interested in understanding what is involved to help make this happen,” Ms Slattery said.

“This includes accessing financial advice, which these investors show a continuing appetite for, but as this report has shown, the advice industry can make their role even more effective by tailoring their approach to the stage of life the investor is in. We think that through reporting insights like these we can continue to support the advice industry in its aim of demonstrating its value to investors and helping investors make the most out of their retirement savings through their SMSF.”

In addition to highlighting the differing attitudes towards advice, the report provides a snapshot of the SMSF asset allocation preferences among the generations. As a general trend, cash/near cash holdings and direct shares in SMSFs have increased in recent years, while managed fund holdings have decreased.

“We have always known that the cash holdings in SMSFs as at 30 June each year is not a true indication of the cash that is held throughout the year. This report highlights what trustees really do when they have control and flexibility and how they choose their assets to hold, including cash/near cash assets.”

Generation Y has lower cash balances and a higher proportion of their portfolios in equities than others, and a greater focus on achieving capital growth. They have been the most active during the past 12 months in changing the asset allocation of their funds.

Reflecting the ‘Great Australian Dream’, Generation X has 30 per cent of their SMSF capital in direct property, but with relatively illiquid portfolios, is less likely to have substantially changed their SMSF’s asset allocation in the past year.

The Baby Boomers have recently taken a more defensive stance towards their SMSF asset allocation. While still largely focused on capital growth, half have sought out franked dividends as a source of regular income. They still have among the highest allocations to direct equities, second only to the Silent Generation. Surprisingly, despite ongoing market volatility and the flight to safety among some investors, the Silent Generation have actually increased their SMSF allocation to direct equities in the past six years.

Summarising the key learning from the report, Mr Lembit said: “The overall message is clear: by tailoring advice to the different investment styles and decision-making processes of each generation, advisers can build stronger and more fruitful client relationships.”

25 July 2012

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