Specialist financial planners are critical to educating self-managed super fund (SMSF) trustees about the benefits of asset diversification, a recent research report by SMSF Professionals’ Association of Australia (SPAA) and Russell Investments has claimed.
The third annual Intimate with Self-Managed Superannuation report showed that despite performing well during the market downturn, cash investments were the poorest performing asset class in 2012 returning four per cent, compared to 19.1 per cent for international shares.
Cash and term deposits accounted for 33.9 per cent of SMSF investments in 2012, an increase from 25.6 per cent in 2011. SMSFs reduced holdings to Australian equities to 37.1 per cent down from 43.5 per cent in 2011.
Australian equities, which rank as the second highest allocation in SMSF portfolios, were the second highest performing asset class of 2012 returning 19.7 per cent. Cash investments (71 per cent) and Australian equities (70.2 per cent) were the two most advised areas by financial advisers servicing the SMSF sector.
Russell Investments chief executive of Asia Pacific, Alan Schoenheimer, said the lack of diversification in SMSF portfolios was illustrated by the concentrated allocations, at the expense of investing across multiple asset classes.
“As we’ve repeatedly witnessed, you can’t pick the winning asset class year on year. Multi-asset portfolios, which are built to meet specific objectives regardless of the annual asset class winner, will need to be a key consideration for SMSFs looking to gain exposure to the mix of assets and adaptive approaches that will help them to meet their retirement objectives,” Mr Schoenheimer said.
“Financial planners are well placed to educate trustees about the more recent adaptive asset allocation approaches employed by many funds – allowing them to readily adapt to changes in the investment environment and client circumstances.”
The report also showed that trustees are confident of meeting retirement objectives and confident of their investment knowledge.
With a growing number of SMSFs approaching retirement, 63.5 per cent of trustees said they were at least reasonably confident they were on track to achieve their retirement goals. Yet according to Russell, this means approximately 36.5 per cent of trustees may fall short.
“Despite these challenges there is a breadth and depth of investment opportunities available to assist SMSFs to meet their retirement objectives – and specialist advisers have a pivotal role in the education of SMSFs about these opportunities,” Mr Schoenheimer said.
SMSFs desire for control of their superannuation and investment decisions continued to come through in the 2012 research findings, with 58.8 per cent claiming they had strong or very strong knowledge of investments, and the majority (61.6 per cent) relying on their own research to drive investment decisions.
However, Russell suggests SMSFs’ lack of portfolio diversification may mean trustees’ research is failing to identify opportunities for accessing asset classes such as international equities.
“Financial planners may need to start broadening their advice services to include competency in new adaptive investment opportunities and other direct asset classes to provide strategic guidance to SMSF trustees and bridge the gaps in knowledge,” Mr Schoenheimer said.
