Control drives SMSF members
New research shows a desire to gain greater control over their assets is the main reason why investors choose to start a SMSF.
But self-directed investors could do more to improve financial literacy and knowledge about how to run their fund.
The research working paper, Who starts a self-managed superannuation fund and why? was released in late 2016.
According to the research, SMSF investors highly value the chance to manage their own funds. They also prefer to select their own share market investments.
The research paper also noted, “the other perceived advantage they saw is the opportunity to minimise tax, including through implementing a transition to retirement strategy.”
The research included a thorough exploration of the demographics of SMSF investors.>
In terms of income, SMSF members earn somewhat, although not a huge amount, more than other superannuation investors. According to the research, 64% of SMSF members earn more than $1,000 a week. In contrast, 59% of non-SMSF respondents earn this amount.
While that may have been an obvious finding, what’s less surprising is the relatively lower levels of financial knowledge held by SMSF investors.
Fifty-six per cent of the non-SMSF members who responded to the survey that underpinned the research correctly answered two or more numeracy questions. This compares with 47% of SMSF members, a difference of 7%.
As the report notes, “The same but weaker trend applies to financial literacy, with 78% of non-SMSF members correctly answering two or more financial literacy questions compared to 73% for SMSF members.”
The report authors also noted SMSF members have relatively greater confidence in their ability to mange their assets compared to other investors. According to the research, 48% of the respondents believe they have above average financial skills. In contrast, just 36% of non-SMSF respondents hold this view.
As might be expected, the SMSF members surveyed for the research also report a higher tolerance for risk. The results show 43% of SMSF members say they have above average risk tolerance. This compares to 29% of non-SMSF members.
t’s pleasing that SMSF members seem to have a good handle on how to discharge their regulatory duties. When it came to general knowledge of SMSF regulation 35% of SMSF members were able to correctly answer two or more questions on this topics. For non-SMSF members this number is only 14%.
The results also show there has been a marked increase in the number of funds established over the past decade.
According to the research, 58% of SMSFs established by survey respondents occurred across the past 10 years, while another 12% have been in operation for more than 20 years.
In terms of the trustee structures for SMSFs, the research found about one third had a corporate trustee, while another third said they did not have a corporate trustee. Another 27% said they were unaware whether their fund had a corporate or individual trustee.
When it came to the extent of respondents’ involvement in their fund, 63% said they were the main decision maker for the fund. Twenty-eight per cent said that they were joint decision makers with the other trustees. While just more than 8% stated that they did not play a role at all in the management of their fund.
A total of 63% of the SMSF members who responded to the survey said they were guided by a financial professional such as an accountant or financial planner, SMSF administration provider or adviser to set up their SMSF. Initial transfer balances ranged widely from less than $50,000 to in excess of $3 million.
Cost is a perennial consideration for SMSF investors. Similar to other findings in the research, there was a substantial variation in cost.
As the authors noted, “[in terms of the] cost involved with being a member, we found that the annual reported cost ranged from less than $500 to in excess of $10,000, while member time involved varied from less than an hour to in excess of five days a month. The median reported annual cost of operating a SMSF is between $2,000 and $3,000 per year.”
Overall the results show there is a multitude of different investors who operate an SMSF, demonstrating its broad application as an investment vehicle.
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