Self-managed super funds have never lacked for critics. But for sheer audacity you have got to take your hat off to the industry super fund HostPlus, which uses negative performance numbers in its own self-directed investment option to launch a scathing attack on the more than one million people who choose an SMSF to achieve their retirement savings goals. (“The man who shouted stop to DIY fund management”, 13/10.)
The arguments put forward by HostPlus chief investment officer Sam Sicilia in The Australian are as breathtaking as they are flawed:
• He suggest superannuation should be left to the investment experts.
• He also contends that if you give people a self-directed investment option, as does HostPlus, to invest their compulsory superannuation, then they will fail. Miserably.
But to compare self-directed investments inside an APRA-regulated fund to an SMSF is to compare apples and oranges.
Indeed, comparisons between self-directed investments (a choice option product in a fund that has hundreds of thousands of members with low balances of around $10,000) to SMSFs (a trust structure with no more than four members) is erroneous. Here’s why:
Funds offering self-directed investment have a restricted set of strategic investment options; in the case of HostPlus, it provides members a choice of direct investments into a small number of companies from the S&P/ASX 300 index, ETFs and term deposits. It also offers a lesser choice where members can select one or more fund managers from its selected pool of 10 fund managers.
In other words, self-directed investments impose restrictions; they must choose from a limited pool of investments that are specifically chosen by the fund’s expert investment team. It’s a Claytons’ choice.
The contrast with an SMSF could not be starker. Each trustee invests to suit their own personal circumstances, knowledge and risk appetite. Typically SMSF investors are conservative throughout the life cycle, although there is a bigger focus on growth assets in the accumulation phase.
In terms of asset allocation, the only limitations on where they invest are those imposed by the market. Many rightly chose to use professional advice and services to assist in decision making for investment and compliance, and, most importantly, trustees make the final decisions. To quote US president Harry Truman: “The buck stops here.”
It’s not just an issue of investment choice, important as that is. Someone in an APRA-regulated fund who has $10,000 in superannuation (in some instances their total super savings) and opts for self-directed investment simply can’t be compared with an SMSF where the average fund size is a tad over $1 million. (ATO statistics show few SMSFs have less than $200,000 in FUM). That sum of money gives the SMSF trustee options in diversification that are simply not available to their APRA-regulated counterpart.
It also doesn’t take into account the trustee profile. Although the number of SMSF trustees aged less than 40 is growing, they are still in the minority. The majority are 50-plus who typically are small business people, professionals, contractors, executives, managers and primary producers.
These are people who not only know how to make financial decisions, but also when to get advice about those decisions.
The investment performance of SMSFs bears no comparison with the figures cited for self-directed investments:
● At June 30, 2013, ATO figures show that for the previous seven years SMSFs outperformed APRA regulated funds, on average delivering 4.33 per cent a year against 3.69 per cent for APRA-regulated funds.
● What’s more, SMSFs perform better when markets are down. This investment performance stands in stark contrast to APRA-regulated funds post the GFC where the figures demonstrate many trustee boards (to say nothing of the professional fund managers) were off the pace.
● Note, too, that it’s not just the SMSF Association that is wary about comparing the direct investment options of APRA funds with SMSFs. ASIC has announced it is paying close attention to any APRA fund that calls their investment options SMSF “equivalents” or “SMSF-like” investments, rightly placing sanctions on some funds that have misled their members in this regard.
SMSFs are not for everyone; most people will opt to wash their hands of the responsibility for their superannuation to an APRA-regulated fund. But quite clearly there is a sizeable minority who want to take control of their retirement savings — including the investment decisions. And performance of SMSF trustees to date suggests they are more than capable of doing so, as both the Cooper and Murray reports attested. So the question is — why the persistent criticisms of SMSFs and could there just be another agenda in play?