I’m a bit sick of COVID 19 controlling my life at the moment. I know it’s important. I can keep my distance. I can stay out of the office and hunker down in my tiny Sydney apartment. I can live the lockdown life. It’s for the common good, so sure, count me in. I’m just not loving the feeling that someone else is in control of my life. It’s like leaving my husband in charge of the Spotify selection for dinner. Hilltop Hoods again? No way.
It’s the same with investments. I like to feel like I’m in the driver’s seat. Of course, right now, as the market is travelling through unfamiliar territory, there are very few investors who feel like they have much control. Especially if they’re with an industry or retail super fund. These fund members are effectively outsourcing trustee obligations and the management of their retirement savings. This might suit some, particularly those with smaller balances who are accumulating rather than drawing from it. But if you value control, you may not be too thrilled, and the research seems to back this up.
New data from Roy Morgan indicates that Self managed Super Funds received the highest level of customer satisfaction in March (i.e. 75%), while retail fund and industry fund satisfaction fell. This shift comes at a time of increased uncertainty and challenging market conditions.
COVID-19 has shone a spotlight on Industry and retail super funds. When markets correct or dislocate, you start to see the implications to members of giving up legal ownership, investment decision making and in some cases liquidity when it comes to the management of their retirement savings.
Industry and retail super funds have multi-asset investment options, which are essentially pooled funds – where the underlying investment managers make investment decisions on behalf of all unitholders or members. Funds that have a significant exposure to illiquid infrastructure and property investments and are receiving requests from members who want to either withdraw funds early and/or switch to cash are now in a position where liquidity is a significant issue. This perfect storm is forcing some managers to sell growth assets at the worst possible time to raise the required cash to meet requests by members.
How does this impact someone who wants to stick to their long term investment strategy and ride out the storm? Although this might be the rational, sensible thing to do, depending on the super structure and investment vehicle used, this person’s investment outcome could still be impacted by the decisions of their fellow unitholders/members.
What this touches on is lack of control. SMSF members could come out of this crisis better off than Industry fund members based purely on the fact that they SMSF trustees have control. An SMSF allows members to retain legal ownership of their super assets (something that feels more important in uncertain climate like this) and tailored an investment strategy to meet their individual needs. Segregating growth and defensive assets means that income can be matched with withdrawals and funds can be set aside to meet short term needs, protecting growth assets and avoiding the need be a forced seller. The use of investment vehicles like an Individual Managed Account can provide the best of both worlds – a direct and tailored investment solution, ultimate control and transparency but without the hassle of the day to day.
SMSFs are not for everyone, nor should they be. However, if used properly and coupled with good advice, they can be extremely powerful in preserving and growing retirement savings. And they have the potential to give you greater control of your capital.
If you would like to find out if an SMSF could be right for you or if you think you could be doing more with your SMSF, don’t hesitate to get in touch. We can’t meet at the Elston offices in Sydney just yet. But feel free to give me a call on my direct line 02-5646-2006.
Elston Strategy Adviser
Recently Ausbiz invited me to an interview (not in their Sydney studios, but over Skype). We had a quick chat about self managed super funds. If you want to have a watch, please visit the post; Can an SMSF give you greater control of your capital?