The toughest tasks for self-managed super

Is it the paperwork, all of the investment rules or the fundamental challenge of choosing where to invest your money?

If you named choosing investments for your SMSF as the toughest task, you would be far from alone.

A comprehensive survey for the Vanguard/Investment Trends 2016 Self-Managed Super Fund Reports, released during the past week, asked SMSF trustees to list the hardest aspects of running an SMSF. Their main responses included:

• Investment selection (43 per cent). This percentage has risen over the past year as SMSF trustees, along with other investors, attempt to come to terms with the low-interest environment and widespread expectations for more challenging and volatile investment conditions over the medium-to-long term. (See Vanguard's economic and investment outlook, Australian edition, from our Investment Strategy Group.)
• Administration and regulation (40 per cent). This includes having trouble keeping track of changes in the rules.
• A lack of time including to review and plan for their SMSFs (24 per cent).

Interestingly, 22 per cent of respondents to the survey did not find any aspect of running their fund difficult.

The finding that more SMSF trustees have difficulty choosing investments would also partly explain another finding from the survey that a large proportion of SMSFs recognise that they have unmet needs for advice.

An estimated 255,000 SMSFs – out of 572,000 funds at the time of the survey – had unmet needs for advice. This is the largest number recorded by Investment Trends over the years.

"Advice needs most often relate to retirement," the report comments, "though more [SMSFs] are citing investment-related advice gaps."

For instance, an estimated 146,000 SMSFs have broad unmet needs for advice on retirement strategies while 139,000 have unmet needs for investment advice. And an estimated 100,000 funds have unmet needs for advice on tax optimisation.

Drilling down on more specific unmet needs for advice, SMSFs recognise their need for advice on inheritance and estate planning (an estimated 61,000 funds), SMSF pension strategies (57,000), age pension and other social security entitlements (55,000 funds), investment strategy/portfolio review (52,000), identifying undervalued assets (51,000), Exchange Traded Funds (46,000), offshore investing (43,000), trying to ensure members don't outlive their savings (42,000 funds) and protecting assets against market falls (39,000).

The finding that 44 per cent of Australia's SMSFs recognise that they have unmet needs for professional advice is extremely positive. This should lead to more fund trustees working with advisers to set appropriate asset allocations for their diversified portfolios, checking on the adequacy of their retirement savings and setting suitable retirement income strategies for retired members.

By Robin Bowerman
Smart Investing 
Principal & Head of Retail, Vanguard Investments Australia
15 August 2016