how the smsf sector is driving growth in superannuation ......mar 14, 2017  · smsf market offers...

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How the SMSF sector is driving growth in superannuation assets and ETFs in particular Peter Hogan Head of Technical - SMSF Association March 2017

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Page 1: How the SMSF sector is driving growth in superannuation ......Mar 14, 2017  · SMSF market offers considerable opportunity for ETFs . Opportunities for ETFS SMSF direct exposure to

How the SMSF sector is driving growth in superannuation

assets and ETFs in particular

Peter Hogan Head of Technical - SMSF Association

March 2017

Page 2: How the SMSF sector is driving growth in superannuation ......Mar 14, 2017  · SMSF market offers considerable opportunity for ETFs . Opportunities for ETFS SMSF direct exposure to

The SMSF Association is an independent organisation focussed on informing, educating, empowering and advocating for all Australians who self manage their superannuation. We believe that every Australian has the right to control their own destiny, and to create a good quality of life in retirement. Further to that, we believe better outcomes arise when professional advisors and trustees are armed with the best and latest information, especially in the growing and sometimes complex world of SMSFs.

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Presenter bio

Peter Hogan

Head of Technical

SMSF Association

► Peter Hogan - Head of Technical SMSF Association

► Peter, who has joined the Association as Head of Technical, is one of Australia’s foremost SMSF specialists, having worked in the sector over many years. A lawyer by training, he cut his teeth in the ATO before joining some of Australia’s largest financial institutions to work in key superannuation, investment and taxation roles. His enormous industry experience and knowledge, especially as they pertain to tax issues, means he is in constant demand on the SMSF speaking circuit. Away from the world of SMSFs, he is a keen weekend golfer when he is not providing a taxi service to junior sporting events. Peter is an SMSF Association Specialist Adviser and former Chair and National Board member of the Association.

Page 4: How the SMSF sector is driving growth in superannuation ......Mar 14, 2017  · SMSF market offers considerable opportunity for ETFs . Opportunities for ETFS SMSF direct exposure to

Growth in SMSF assets

ATO Data as of December 2016

$650 billion in total SMSF assets

$1.17 million average SMSF size

$595,000 average member balance

585,000 SMSFs 1.1 million trustees

Market share of 30% of total superannuation market of $2.2 trillion

Compares to retail funds (28.2%), industry funds (24.8%), public sector funds (11.8%) and corporate funds (2.85%)

Page 5: How the SMSF sector is driving growth in superannuation ......Mar 14, 2017  · SMSF market offers considerable opportunity for ETFs . Opportunities for ETFS SMSF direct exposure to

Growth in SMSF assets

ATO Data as of December 2016

Asset allocation concentrated in three asset classes

30.3% in direct Australian shares

24.8% in cash & term deposits

15.4% in direct Australian property

These percentages have been largely steady over long periods

ATO Data as of June 2004

Total SMSF assets $128 billion

31% in direct Australian shares

23.1% in cash & term deposits

12.2% in direct property

Page 6: How the SMSF sector is driving growth in superannuation ......Mar 14, 2017  · SMSF market offers considerable opportunity for ETFs . Opportunities for ETFS SMSF direct exposure to

The role of ETFS to date

SMSF trustees have been slow to pick up on ETFs

Largely an advised investment strategy

SMSFs use ETFs for international exposure more so than non-SMSF investors

SMSFs use ETFs for exposure to Australian shares but less so than non-SMSF investors

(Recent ASX Data presented at SMSFA National Conference February 2017)

SMSF market offers considerable opportunity for ETFs

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Opportunities for ETFS

SMSF direct exposure to international markets less than 1%

Higher where there is a financial adviser involved

Direct investment in international shares still problematic

ETFs offer a traded, transparent alternative to direct international market

ETFs are also used for exposure to Australian shares and Australian fixed income by SMSF trustees (Recent ASX Data presented at SMSFA National

Conference February 2017)

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Investing in the SMSF context

Critical that a SMSF has an investment strategy

Should always reflect the actual investments

Must also take into account the need for insurance

Can be changed as often as is needed

Is set by trustees and so should be achievable

Should be regularly reviewed

Objectives, strategy, review and any changes should be minuted

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Investing In The SMSF Context

Investment objectives and strategy should be both meaningful and measurable

Must be able to justify decisions made in setting investment strategy

Cannot be penalised for making bad decisions about investments

Recovery action against any person involved in investment outside investment strategy where money is lost as a consequence

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Investing in the SMSF context

Investment objectives set the long term investment returns expected by trustees

Investment strategy describes how trustees intend to invest SMSF money in order to achieve those long term goals

Performance of investments must be regularly reviewed against the objectives to assess relative performance

Either objectives or strategy can be changed at any time

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Investing in the SMSF context

Investment strategy describes how trustees intend to invest SMSF money in order to achieve those long term goals

Generally described as percentage allocation to asset classes

Ranges usually provided Benchmarking is not usual Referencing “managed funds”, “ETFs” or “private unit

trusts” for example is neither “meaningful” nor “measurable” & so not recommended

Law requires “regular” review Descriptive document which will often contain trustees

reasons for investing or not investing in a particular asset class

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Investing in the SMSF context

Member direction in relation to investment choice is acceptable

Different members can choose to invest their account balance differently to other members

Complicates administration & accounts preparation but is otherwise OK

Different to large funds which have investment-style choice only

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Conclusions

SMSFs represent a significant percentage of the Australian superannuation market by size

Asset allocation is generally concentrated

ETFs have a small share of that market at present

SMSF trustees use ETFs to access asset classes where they have had traditionally low exposure eg international shares & Australian fixed interest

Arguing the case for diversification successfully to SMSF trustees either through intermediaries or directly offers a real opportunity

Page 14: How the SMSF sector is driving growth in superannuation ......Mar 14, 2017  · SMSF market offers considerable opportunity for ETFs . Opportunities for ETFS SMSF direct exposure to

Disclaimer

© SMSF Association 2017

This information is general in nature and intended to be used as a guide only.