On the cusp of the draft report of the Financial System Inquiry (FSI) being handed down, two important surveys have been released that will hopefully reinforce the message that the self-managed super fund (SMSF) sector is performing well.

The Roy Morgan Research ‘Superannuation Satisfaction’ report for the six months to 31 December 2013, based on more than 30,000 interviews, found that SMSFs were the clear leader of the different superannuation sectors with a satisfaction rating of 71.9%, followed by industry funds (53.5%) and retail funds (51.2%).

To be honest I am not surprised by these latest figures from Roy Morgan. It has always been my contention that SMSFs encourage their members to be engaged with their superannuation, so the fact they record a higher satisfaction rating is probably to be expected.

It’s the extension of that ‘satisfaction’ number that I think is interesting. It means they are more involved in planning their retirement, are taking greater control of their superannuation, and are therefore, in my opinion, more likely to be better positioned financially when they retire. In the accumulation phase it gives trustees the control and flexibility to tailor their fund’s investments and costs to suit their own circumstances.

The other report was produced by Rice Warner and commissioned by National Australia Bank. It found that SMSFs are the fastest-growing segment of the superannuation industry (no surprises there), but that they have rewarded their members with on average out-performance compared with the other superannuation sectors. To some industry observers that was a surprise.

It’s often been conventional wisdom that SMSF trustees, on average, invest conservatively, and as evidence they cite the 28% cash and fixed deposit holdings. It means they outperform their APRA-regulated counterparts when markets are under-performing and underperform when markets get a head of steam.

More specifically, critics have pointed to the lack of overseas investments (particularly equities), and note that this misallocation of assets has cost trustees dearly in recent times when overseas equity markets, underpinned by low interest rates, have performed strongly. Critics also argue that SMSFs are overweight in fully franked Australian blue chips, such as the banks, ignoring the fact that the tax incentives make it almost impossible for trustees to ignore these stocks.

The Rice Warner data shows that between 2005 and 2012, SMSFs out-performed in six of the eight years analysed returning 7.7 per cent a year compared with 4.9 per cent for the rest of the superannuation industry over the eight years. Taking fees into account SMSFs produced a return of 6.8 per cent over the eight years compared with 4.1 per cent for the rest of the superannuation industry.

To quote NAB’s executive general manager, Banking and Wealth Solutions, David Gall, who said that this data is contrary to many common perceptions and that SMSFs do rate well in terms of performance when compared with other funds.
He’s right. That has been the perception – and hopefully it’s been laid to rest. But the question I ask is why? Many trustees are small business people, farmers or professionals who have to manage their businesses. Why do people assume these people, who make commercial decisions on a daily basis, are suddenly inept when it comes to their retirement savings? That never made sense to me.

In addition, there is now an army of professional advisors to give these people advice, whether it’s administration, investing, or auditing. The evidence shows many trustees are seeking advice either because they don’t believe they have the level of expertise required, or, in many instances, simply don’t have the time.

However trustees are choosing to make their decisions about their funds, clearly they are satisfied with the outcomes. Judging by the Rice Warner findings, that’s hardly surprising. Let’s hope the FSI takes note.