Balaji Gopal

In a reversal from last year, SMSF trustees intend to increase their allocation to equities and decrease their allocation to cash in the current low-rate environment, according to the 2021 Vanguard/Investment Trends SMSF Investor Report launched last week.

Some 49 per cent of SMSFs who want to decrease their cash allocation cited cash as a poor investment considering record low interest rates. Forty per cent also believe they must invest outside of cash to generate a steady income stream, a concern that remains top of mind for SMSFs.

“Many SMSFs have traditionally relied on the yield generated from their investments to provide income during retirement. Unfortunately, with interest rates expected to remain low for the next year at least, cash investments are unlikely to produce the desired level of income,” said Balaji Gopal, Head of Personal Investor at Vanguard Australia.

“Instead, SMSFs are looking to invest more in equities or income yielding assets like property to make up for the shortfall”.

SMSFs’ appetite for growth-oriented investments is also returning because of their increasing optimism that markets will experience steady growth as economies recover from the pandemic.

More than 60 per cent of trustees surveyed said they had a positive outlook on Australian shares, and almost 50 per cent said they had a positive outlook on international shares.

This bullish sentiment is also reflected in SMSFs’ increased dividend yield expectations for the next 12 months, with their dividend yield expectations recovering to pre-pandemic levels (4.2 per cent in April 2021 vs. 4.3 per cent in April 2019, on average).

Additionally, SMSFs pursuing portfolio growth are also more willing to invest in ETFs and small cap and speculative shares in 2021 than they were in 2020.

Mr Gopal said: “The shift in asset allocation to a more aggressive stance is understandable given current market conditions, but SMSFs must consider their risk tolerance and remember the role that defensive assets, like bonds, play in a diversified portfolio before significantly altering their investments.

“Recent Vanguard research showed that investors would have to be 100 per cent allocated to equities to produce the dividends needed to support most income requirements. This significantly elevates a SMSF’s portfolio risk – buoyed up even higher if they’re invested in speculative shares that can experience large price fluctuations.

“An alternative investment strategy suited to low-yield environments is a total returns approach, where investors utilise both income and capital growth elements of their portfolio to support their spending needs”.

Strong appetite for ESG investing

SMSFs are eager to increase their allocation to ESG investments if it generates positive returns, but there exist several barriers to ESG adoption.

SMSFs’ uptake of ESG products is predominantly determined by whether or not they believe ESG investment can deliver comparable returns to incumbent products.

While the majority (54 per cent) of SMSFs surveyed believe returns from ESG investments will be similar to non-ESG investments, 22 per cent believe returns will be worse.

Almost half of SMSFs would only consider ESG investments if they offered better returns, while 39 per cent of trustees are not willing to accept potential lower returns even if the fund generates a positive social or environmental outcome.

There is also a lack of awareness among SMSFs of ESG products, with 21 per cent citing lack of knowledge as a barrier to ESG investing, and 18 per cent citing lack of tools and research to identify and compare ESG products as another.

“This year’s survey reveals that while there is certainly appetite for ESG investments, the industry still has a way to go to improve SMSFs’ awareness and understanding of such products,” said Mr Gopal.

SMSF market overview

Total SMSF assets have rebounded to an all-time high of A$787b in March 2021 following COVID-induced losses last year (A$694b in March 2020).

The total number of SMSFs also continues to grow, with some 597k SMSFs established as of March 2021, despite the annual rate of establishment at decade lows.

SMSFs trustees are also getting younger, with the average age falling from 48 to 46 years old.

“SMSFs are now no longer just the realm of older investors. Younger investors are setting up SMSFs with smaller account balances and appreciating more the investment control and return opportunities that SMSFs can offer,” said Robin Bowerman, Head of Corporate Affairs at Vanguard Australia.

However, 44 per cent of potential SMSF trustees still intend to keep their APRA regulated super fund as contributions are still paid into this account and as a back-up in case they change their mind.

SMSFs and financial advice

COVID uncertainty ignited a significant shift in SMSF attitudes towards financial advice, with more trustees willing to seek professional advice than they did before the pandemic.

This, however, has not translated into increased adoption of advice, as the number of SMSFs using financial planners continue to slide.

Positively, overall satisfaction with financial planners has increased slightly since last year from a composite score of 69 per cent to 71 per cent, particularly when it comes to tax advice or technical expertise.

“Opportunities remain for advisers to demonstrate the value they can offer SMSFs, especially in areas such as SMSF pension and contribution strategies, as well as estate planning where there exists an advice gap,” said Mr Bowerman.

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Robin Bowerman

Vanguard is urging investors to remain vigilant following a notable rise in investing scams targeting Australian investors, and are calling on the media to help highlight this significant issue for investors.

Following ASIC’s warning earlier this year about investment bond scams, Vanguard has become aware of a phishing scam which is operating under the guise of Vanguard’s brand, along with other well-known fund managers, offering bond investments via a fraudulent investment comparison website.

The scam involves common search engine terms like bond or high yield investments resulting in an advertising link to fake investment comparison websites like ‘Investment Compare’ or some variation of that name to collect personal information including identification and bank details, followed by in-person contact and provision of a fake Vanguard prospectus designed to convince victims to purchase non-existent investment products.

Vanguard is alerting people to this scam via our websites and investor portal, through our phone support, and is advising anyone impacted on steps to take if they have shared any personal information or transferred funds.

Vanguard’s Head of Corporate Affairs, Robin Bowerman, said “In this low rate environment, these scammers are taking advantage of investors seeking higher yields through a fake investment bond offering eye-catching – but ultimately unrealistic – yields. Echoing ASIC’s February warning; if it feels too good to be true, it probably is.

“We are urging anyone considering investing in a new investment to conduct proper due diligence prior to transferring funds, including contacting the asset manager they are looking to invest with directly via their listed phone number or website. Anyone impacted should immediately report this criminal offence to police, contact their bank to stop payments being taken, and alert major credit bureaus such as Equifax and Experion to place a stop on their credit profile to prevent others opening accounts with their personal information.”

Where investors can get further assistance:

• The Australian Competition & Consumer Commission’s ScamWatch website provides information on how you can protect your privacy and prevent identity theft.
• You can also contact IDCare on 1800 595 160 or via www.idcare.org for support if you believe your personal information has been put at risk.

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John Maroney

Industry experts will dissect the Retirement Income Review (RIR) report that was handed down late last year at the 2021 SMSF Association National Conference being held virtually on 16 and 18 February.

SMSF Association CEO John Maroney says: “We are extremely lucky to have one of the RIR panel members, Dr Deborah Ralston, address the issues raised by this important report, as well as having input from the Association’s Deputy CEO/Director of Policy & Education, Peter Burgess, Vanguard’s Head of Corporate Affairs, Robin Bowerman, and Challenger’s Chairman of Retirement Income, Jeremy Cooper.

“All four have a wealth of knowledge and experience about Australia’s retirement income system. It will be invaluable for conference delegates to hear insights into their thinking on a report that will have an ongoing influence of Australia’s retirement income system.

Maroney says other highlights from the conference will be special addresses by the Minister for Superannuation, Financial Services and the Digital Economy, Senator Jane Hume, the Shadow Minister for Financial Services and Superannuation, Stephen Jones, ATO Commissioner Chris Jordan and Danielle Press from ASIC.

“We are fortunate to have both the Minister and Shadow Minister for our sector take time out of their busy schedules to address the conference. As the country emerges from the COVID-19 pandemic, their views of how they plan to tackle the various issues confronting our sector will make for interesting listening.

“Other highlights will be Peter Burgess giving the latest legislative and regulation updates in his highly anticipated plenary session, with other sessions covering issues such as auditor independence, positioning an SMSF practice for growth, identifying unmet advice needs, divorce and SMSF disputes, and COVID-19 relief measures.

“As always, it will be a comprehensive technical program that is designed by SMSF practitioners for SMSF practitioners.”

This year’s virtual conference does have the benefit of not requiring travel or accommodation, as well as the luxury of people being able to tune in from the comfort of the home or office. And the entire technical program contains more than 30 CPD hours.

There will be access to the online platform until Friday 9 April 2021 for all registered delegates.

Registrations, full program and speaker information.

For more details about the Retirement Income Review Session.

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Robin Bowerman

Despite return and yield concerns during the peak of COVID-19 induced volatility, self-managed superannuation fund (SMSF) trustees are optimistic about market recovery, according to the 2020 Vanguard/Investment Trends SMSF investor report launched last week.

This year’s report surveyed over 3000 SMSF trustees on their investment priorities and industry outlook providing an insight into how trustees navigated through the volatility caused by the global pandemic.

While the SMSF market continues to grow, the impact of COVID-19 and subsequent macroeconomic uncertainty appears to have exacerbated the slowing rate of new SMSF establishment.

The size of the SMSF market now represents one-quarter of the Australian superannuation industry and currently sits at A$676 billion, a two-year low.

Greater control over investments remains the main reason investors set up new SMSFs however more trustees than ever are also maintaining their existing super fund.

Record switch to defensive assets

As a result of the extreme market uncertainty this year, nearly half of SMSF trustees surveyed made substantial changes to their asset allocation.

Some 55 per cent of SMSF trustees took a more defensive stance and increased their cash and property allocations, driven primarily by a negative outlook on both domestic and international equities.

Exposure to direct shares declined in line with the market sell-off in Q1 2020. On average, direct shares now comprise 31 per cent of SMSF portfolios, decreasing four per cent year on year and reaching levels last seen in 2009 post Global Financial Crisis.

One-third of SMSF trustees have fixed income exposure within their portfolios, with hybrid securities remaining the most popular product despite more investors turning to direct bonds and ETFs.

Although SMSFs have a desire to used fixed income products to diversify their portfolios and achieve a sustainable income, there is a lack of understanding of what constitutes a true fixed income product and the fundamental role they play within a portfolio.

“Investors should want their defensive assets to be truly defensive, especially when the market swings as wildly as it did earlier this year. Hybrid securities do not provide the same level of safe-harbor stability as high-quality bonds do as they still have equity-like features, and in times of market stress may not provide true diversification across asset classes,” said Robin Bowerman, Head of Corporate Affairs at Vanguard Australia.

“As ASIC warned in its May 2020 report on retail trading activity, investors are taking more risk in the fixed income space as a result of low interest rates and declining yields. For a better chance at securing steady retirement income and safeguarding returns in periods of volatility, SMSF trustees need meaningful portfolio diversification.”

Yield concerns

Findings also show that SMSFs’ dividend yield expectations have dropped from 4.8 per cent pre COVID-19 outbreak to 3.6 per cent.

“For pension phase SMSF trustees, who make up nearly half of all SMSF investors in Australia, these are very unsettling times with real concern about low yields and returns and how that will impact portfolio income,” said Mr Bowerman.

“Rather than focusing on an income-oriented strategy, a total-return approach – where an investor makes withdrawals from the full return of their portfolio – coupled with a spending strategy, can assist investors to take back control of their income stream”.

Optimistic on recovery, but still lacking in advice

Despite wavering confidence earlier in the year, SMSF trustees are relatively optimistic about market returns going forward.

More than ever, SMSFs are focused on maximising capital growth.

In the short-term, SMSFs show significant appetite to rotate back into equities with 37 per cent of trustees willing to increase their allocation to Australian shares, and 23 per cent to increase investment in international shares.

There is still a strong and growing preference for blue-chip shares and considerable appetite for ETFs and international shares.

The number of SMSFs with unmet advice needs continues to grow, with investment strategy review and pension strategy advice most sought after in these uncertain times.

Vanguard Personal Investor SMSF offer

Launched in early April 2020, Vanguard’s new Personal Investor offer delivers on Vanguard’s ongoing promise to lower the cost of investing by providing retail investors, including SMSFs, direct access to a wide range of Vanguard’s low-cost managed funds at wholesale rates and its Australian-listed exchange traded funds (ETFs) brokerage free.

Investors are also able to trade the top ASX shares by market capitalisation at $19.95 or 0.15% per trade (whichever is greater) and have access to an interest earning Vanguard Cash Account.

“We are excited to have seen more than 8,000 new account holders take up our new digital platform since we launched in April this year in the thick of the COVID-19 pandemic”, said Balaji Gopal, Head of Vanguard Personal Investor.

“Vanguard Personal Investor goes beyond a traditional brokerage account, designed to assist investors through functionality that promotes diversified, long term investing rather than short term trading – one of our enduring principles for investing success.”

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Hamilton, who joined the board in February 2011 and was Chair from February 2012 to February 2014, takes over from Robin Bowerman, who will remain on the board as Deputy Chair.

Bowerman assumed the Chair in September 2019 after Professor Deborah Ralston stood down (her term was due to end at this conference) to avoid any perceived conflicts of interest after being appointed to the Retirement Income Review panel.

From 21 February, the board will comprise Andrew Hamilton – Chair, Robin Bowerman – Vice Chair, Robyn FitzRoy, Liam Shorte, Bernie Ripoll, Tracey Scotchbrook, Michael Houlihan and Scott Hay-Bartlem.

Bowerman says the Chair could not be in better hands with Andrew stepping into the role.

“He brings enormous knowledge of the industry, a wide experience about the Association, and a deep understanding of the issues facing our members.

“I also want to acknowledge the enormous contribution of my predecessor, Professor Ralston, in what was a challenging period for our Association, as well as the full support I received from the staff under the leadership of our CEO, John Maroney.”

Hamilton says it’s an honour to again be asked to chair the organisation. “Although our industry is in a period of enormous change, I remain confident that the new regulatory, legislative, and educational framework, which aims to raise the standards across the industry, will be conducive to a business environment in which the SMSF specialist can flourish.”

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Bowerman, who is Head of Corporate Affairs at Vanguard Investments, has been Vice Chair for the past three years and a Board member since 2011.

He replaces Dr. Deborah Ralston, who resigned as Chair last Friday and has stepped down as a Director yesterday, following her appointment to the threemember Retirement Income Review panel that was announced by the Treasurer, Josh Frydenberg, last Friday.

Andrew Hamilton, a former Chair of the Association, has been appointed Vice Chair. Bowerman says: “I am very honored that my fellow directors have asked me to succeed Deborah as Chair.

Although we are all greatly disappointed at losing Deborah before the end of her term, we totally appreciate why she has chosen to resign and wish her all the best in this new important role.

“She has provided the Association with sound leadership at a difficult time for the industry, and I know I speak for all members when I say her contribution has been greatly valued.”

Ralston says: “Unfortunately I find myself in a position where I feel I must tender my resignation as Chair and a Director of the SMSF Association. It has been a privilege to work with my fellow directors, the executive, and the members, all of whom are dedicated to ensuring Australians enjoy a secure retirement.”

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Robin Bowerman

The annual rate of Self-Managed Super Fund (SMSF) establishment has slowed, with just over 20,000 SMSFs being set up in the first quarter of 2019, down from the 40,000 established in late 2010, according to the latest Vanguard/Investment Trends SMSF Reports – the nation’s most comprehensive research into SMSF trustees and their advisers.

Launched yesterday, the reports collate responses from almost 5,000 SMSF trustees and close to 300 financial planners who advise SMSFs, providing a clear snapshot of the priorities and issues facing SMSF trustees today.

The SMSF sector represented around $747 billion in retirement savings as at March 2019, growing at a slower pace than the preceding 12 months following the impacts of recent industry events, compared to $1.8 trillion invested with APRA-regulated super funds.

“There has been a lot of uncertainty for SMSF trustees recently, particularly in the lead up to the federal election with the Australian Labor Party’s proposed policy to remove refundable franking credits from Australian shares,” said Robin Bowerman, Head of Market Strategy at Vanguard Australia. “However, the proposed policy change did highlight the risk of regulatory change to SMSF trustees and the high levels of home country bias in many portfolios.”

The report also delved into attitudes to other proposed changes to SMSF regulation including the increase to the maximum number of members from four to six, which more than half of advisers saw largely as a positive move, where trustees were unsure of the impact.

The proposed ban on borrowing for investment property was rejected by planners with a majority saying it would have a negative impact on the industry with nearly a third of trustees agreeing with this sentiment.

The total number of SMSFs grew to 598,000 at the start of the year, up just two per cent from the same time last year. The average SMSF balance is $1.2 million, with report findings over recent years showing a trend of lower fund balances and younger trustee ages at the time of establishment.

Despite declining establishment rates, there is still significant appetite among Australians to set up an SMSF, with one in five super fund members planning on setting one up in the future, citing greater control and better returns as the main motivators.

SMSFs are defensive and aiming to diversify

In an uncertain investment climate, more SMSF trustees are taking a defensive stance in their asset allocation.

“Investors’ outlook for market returns is very low at 1.4 per cent, far below the expectations of many economists, including those at Vanguard,” Mr Bowerman said, “this is most likely impacting trustees’ choices about asset allocation quite heavily”.

Despite this, SMSF trustees remain most inclined to invest further in blue chip shares, with 54 per cent citing this as a likely investment choice over the next 12 months.

SMSFs’ allocation to cash increased slightly over the past year to 25 per cent, largely at the expense of unlisted managed funds which dropped by two per cent.

While many SMSFs have adopted a defensive mindset, their appetite for diversifying investment products has increased.

This is highlighted by SMSFs’ use of exchange traded funds (ETFs) with the number currently investing, or planning to invest in ETFs in the year ahead, surging from 140,000 to 194,000 in the last 12 months.

The findings also showed that SMSFs are seeking greater exposure to overseas assets, especially through ETFs, however 52 per cent of respondents cite lack of knowledge about overseas markets and currency risk as the top barriers to obtaining more exposure.  

Looking forward, while building a sustainable income stream remains a key investment goal for many SMSFs, a growing proportion (15 per cent) say protecting their assets against market falls will be their key focus for the year ahead.

Room for advice

The number of SMSFs with unmet advice needs is at a record high, jumping from 275,000 in 2018 to 315,000 in 2019, with their top advice needs relating to estate planning, tax and income strategies, post-retirement planning, portfolio strategy and investment selection.

More SMSFs are experiencing challenges in managing their fund, with many struggling to reduce the time and cost of managing their SMSF. Investment selection, choosing what to invest in, is cited this year by trustees as the hardest aspect of managing an SMSF.

The number of SMSFs who use a financial planner has remained steady throughout most of the past decade but overall satisfaction with financial planners has declined to a seven-year low, with falling satisfaction with level of fees and perceived value for money being the key satisfaction gaps to address.

A lack of confidence in the expertise of advisers is now the number one barrier for SMSFs seeking advice on their unmet needs sitting at 32 per cent, with adviser fees the second biggest barrier at 30 per cent. Despite this, over a third of financial planners expect their SMSF business to increase over the next three years (36 per cent) compared to 15 per cent who expect it to decline.

Vanguard Australia Head of Intermediary, Rebecca Pope, commented on the value this research can provide financial advisers in uncovering the key advice needs of the sector.

“This year’s report showed the ongoing challenge for advisers to find and retain new SMSF clients. This research has for year’s highlighted areas of unmet advice for SMSF trustees, with the top needs almost always focused on areas such as estate and tax planning, providing valuable insight for those seeking to build up their SMSF business,” she said.

“The report also provided some insights for advisers into SMSF trustees’ attitude to alternative forms advice, with more than half saying they would consider over the phone or advice via web chat if it would reduce the cost of the advice service.”

 Key points:

• While SMSF establishment rate slows, future growth prospects remain strong with one in five super fund members planning to set up an SMSF in the near future
• SMSFs are being established at a younger age
• The adoption of ETFs by SMSFs continues to rise with intention to invest in ETFs surging almost 40 per cent in the last year
• The unmet advice needs of SMSF trustees’ are vast and growing
• Cost and trust are two major issues for SMSFs trustees seeking advice

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Robin Bowerman

Vanguard Australia has announced the upcoming launch of two new exchange traded funds (ETFs), offering investors exposure to International Small Companies and Global Listed Infrastructure, and further building out the firm’s range of broadly diversified low-cost ETFs.

The Vanguard Global Infrastructure Index ETF (ASX:VBLD) and the Vanguard MSCI International Small Companies Index ETF (ASX:VISM), will commence trading on the Australian Securities Exchange in the coming weeks, at management expense ratios of 0.47 per cent and 0.32 per cent respectively.

“The addition of these ETFs provides additional building blocks to allow investors to construct investment portfolios that are truly diversified across and within asset classes, and suited to their individual goals,” said Robin Bowerman, Head of Corporate Affairs.

The Vanguard Global Infrastructure Index ETF (ASX:VBLD) offers exposure to around 146 listed infrastructure companies across a range of industries, including transportation, energy and communications, to investors, and at a management fee of 0.47 per cent, is the lowest cost global infrastructure ETF currently available. The fund is expected to be available to investors at the end of October.

The Vanguard MSCI International Small Companies Index ETF (ASX:VISM) is the first ETF listed in Australia to offer broadly diversified international small cap exposure to around 3910 holdings across 19 developed markets globally. VISM allows more investors to tap into in the long-term growth potential typical of the international small companies sector, and is expected to begin trading in November.

VISM and VBLD will be ETF share classes of existing wholesale funds that were established over 10 years ago, delivering investors the benefits of scale from products that currently manage over $801m and $338m in assets respectively. Both portfolios are unhedged.

“Since introducing ETFs nearly 10 years ago, each product we have added reflects Vanguard’s focus on offering enduring funds that deliver on their promise for investors,” Mr Bowerman said.

“The ETF market in Australia continues to grow in both assets under management and products on offer, demonstrating that investors are recognising the accessibility, diversification and low cost benefits of these funds.

“Increasingly, we see Australian investors looking to add international diversification to their portfolios, and these ETFs offer broad international exposure while at the same time providing greater ability to manage a portfolio’s allocation to specific asset classes,” he said.

The new funds join four other ETFs introduced by Vanguard Australia this year, two ESG and two active factor ETFs, bringing the total number of ETFs on offer to 28. With total ETF assets under management of $12.1 billion, Vanguard Australia is the largest ETF provider in Australia.

ETF product details:

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Robin Bowerman

The establishment rate of self-managed superannuation funds (SMSFs) has hit a ten year low, dropping to 4.8 per cent from a high in 2010 of 9.3 per cent, according to the most comprehensive survey of Australia’s SMSF sector – the 2018 Vanguard/Investment Trends SMSF Report.

While SMSF assets have grown over the year to March 2018, market uncertainty and a lack of perceived investment opportunities appears to be keeping $50 billion, or 6 per cent of overall SMSF monies, waiting in the wings in ‘excess’ cash.

The average balance of self-managed super funds increased slightly over the year to $1.24 million, with retirees representing over half of the total SMSF assets.

While investment in managed funds and ETFs shows a slightly higher uptake, the report continues to highlight a persistent potential lack of diversification in SMSF portfolios, with half of trustees saying that more than 50 per cent of their portfolio is invested in a single investment type – commonly direct Australian shares.

In contrast, the report showed 82 per cent of trustees agree that diversification is important, but only 54 per cent believe their portfolio is already diversified enough.

Commenting on this Robin Bowerman, Head of Corporate Affairs at Vanguard, said “the definition of diversification is concerning, with 84 per cent of respondents considering an investment across 30 Australian shares represents a well-diversified portfolio, when instead it is harbouring high equity concentration risk and home country bias, in addition to very low levels of exposure to international shares and bonds.”

“We believe while there is a growing understanding of diversification, SMSFs seem to be bearing significant risk, largely relying on continued success of the Australian sharemarket, which represents just 3 per cent of the global investable equity market”.

Regulatory uncertainty has overtaken investment selection as the main challenge in managing an SMSF, while the top three investment goals cited by trustees include building a sustainable income stream, maximising capital growth and managing risk.

One consequence of reform in super regulations has been a growth in assets held outside of SMSFs, with a third of trustees making, or intending to make, investments outside of super.

“Because of this it will be important for investors to ensure their entire portfolio (both inside and outside their SMSF) is aligned to their investment goals, in addition to keeping an eye on the tax efficiency of any investments made outside of super given they sit outside of the concessional tax structure,” said Mr Bowerman.

The opportunity for advice

Satisfaction amongst SMSFs who currently have a planner has grown to a three year high, with trustees saying the biggest improvements over the year were the ability of planners to explain investment concepts and the frequency of their planner’s contact with them.

Revealing the opportunity that lies in this segment for advisers, half of SMSFs (or 276,000) citing a wide range of unmet advice needs. The report shows inheritance and estate planning remains the biggest area of unmet advice for SMSFs, with tax planning and investment selection closely following. Further to this, one in eight SMSFs say they are likely to look for a new adviser within the next year, with the top considerations when selecting a new adviser being SMSF expertise, integrity and low fees.

Costs, trust and ethical behaviour are the top barriers to SMSFs seeking advice on their unmet needs.

Commenting on this, Rebecca Pope, Vanguard’s Australian Head of Intermediary, said “There is a great opportunity here for advisers to deliver on these unmet advice needs, and we believe that through some key changes to their practices, advisers can leverage this information and better demonstrate their value, as well as tackling some of the perceived issues around expertise and trust with clients.”

“Our research shows that the advisers who spend less time on investment selection and administrative tasks that can be automated, and more time broadening out their service offering, deepening client relationships and embracing new technologies, are those that are more likely to gain the long-term trust of their clients”, she said.

Over the past four years, the proportion of advisers operating in the SMSF space has remained steady, however similar to the concerns cited by trustees, regulatory change and compliance burdens continue to hamper their practices’ further growth in the sector.

Wrapping up, Robin Bowerman said “Vanguard has partnered with Investment Trends on this substantial SMSF report for more than 10 years, with an ongoing objective of growing the industry’s understanding of this important segment of Australia’s superannuation industry.”

‘In 2018, with the backdrop of the Royal Commission and the Productivity Commission’s review, the only real certainty is uncertainty for SMSFs and their advisers, with the prospect of further regulatory change seemingly inevitable. As Vanguard always cautions, the need to stay informed while maintaining a longer term perspective has never been more important for investors.

“The debate about the viability of smaller balance SMSF is likely to be ongoing because the decision is so dependent on individual circumstances. What is critical is that those considering setting up self-managed funds should get professional advice to make sure a SMSF is the right structure for their long-term financial needs.”

The Vanguard / Investment Trends SMSF Trustee, Planner and Accountant Reports are compiled through online surveys conducted during February and March each year. Total responses received in 2018 after cleaning and validation were 2315, 273 and 871 respectively.

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Robin Bowerman

A fundamental question for intending SMSF members is whether to have a corporate trustee or individual trustees for their new fund.

More than 80 per cent of new SMSFs established in 2016-17 had a corporate trustee whereas 57 per cent of all SMSFs had a corporate trustee as at June last year, according to the latest tax office data.

Individual trustee arrangements – with all members individually being trustees – are typically less costly and simpler to put in place when a fund is being setup. Yet a corporate trustee potentially provides greater flexibility for the future.

These tax office statistics suggest that the majority of long-established SMSFs were setup with individual trustees. However, most members of newer funds are recognising the potential long-term attributes of a corporate trustee.

It could be useful to take advice from an SMSF specialist adviser about whether to have individual trustees or a corporate trustee for your fund. It is critical that would-be SMSF members understand the differences between the two.

Under superannuation law, all members of an SMSF must be either individual trustees or directors of a corporate trustee of the fund. An SMSF with individual trustees must have at least two individual trustees yet a corporate trustee can have only one director.

Membership changes

Assets of an SMSF with individual trustees are held in the names of individual members as trustees for the fund. If the membership of an SMSF with individual trustees changes – perhaps following death, marriage breakdown or the addition of a new member such as an adult child – the names on the funds’ ownership documents must also change. This can be costly and time-consuming.

By contrast, with a corporate trustee, assets are held in the name of a company as trustee. If trustee directors change, the assets remain in the name of the same company.

If a fund has, say, two individual trustees and one dies, the fund must appoint another trustee in order to continue as an SMSF. This is because of the requirement that a fund must have at least two individual trustees. Yet if an SMSF has a corporate trustee, a deceased trustee director may not have to be replaced because a corporate trustee can have a single director.

Critically, a corporate trustee will continue to control an SMSF and its assets after the death or incapacity of a member. This is a significant succession-planning issue for an SMSF as well as for the estate-planning of members.

By Robin Bowerman, Head of Corporate Affairs

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