by Olivia Long

The issue of whether people with low balances should be allowed to start up a fund is unlikely to go away – at least in the short to medium term. The arguments advanced against it, as readers of this column will know, are threefold – cost, trustees’ lack of investment acumen and time. 

Well, there’s no age limit on having investment savvy. Time, too, can be made. Remember that old saying, “if you want something done ask a busy person”. 

But cost, well that’s another matter. I’m not prepared to argue that someone with $50,000 who wants to set up a SMSF would not be better off in an APRA-regulated fund – strictly on a cost basis. By the same token the same person could drive a Toyota – but chooses a BMW.

The point I am making is that some people – a minority, admittedly – want to take control of their retirement income from an early age. I suspect the vast majority appreciate they are paying for the privilege – just like the BMW owner – but the principle of aiming for self sufficiency in retirement is critically important to them.

What has prompted me to again add my two tuppence worth to this debate was the recent report, “Intimate with Self-Managed Superannuation, released by the SMSF Professionals’ Association of Australia and Russell Investments, which illustrated two interesting trends. First, the numbers of the SMSFs start-ups is starting to slow. Second, the number of start-ups among Gen X and Y is accelerating.

The first trend is hardly surprising. Given the exponential growth in SMSFs in the past five years it’s to be expected growth would slow. As the survey shows, the proportion of those surveyed looking to establish an SMSF over the next two to five years has dropped from 17.3% to 12.3%. [It should be added, however, that of the 882 non-SMSF trustees surveyed 14.2% are likely to set one up in more than five years’ time.]

But from my perspective what is fascinating is the growth in establishing SMSFs that advisers expect to happen among investors aged between 31 and 40. This trend continues what’s been reported in the two previous reports (albeit from a low base), suggesting the concept of people taking control of their retirement savings from an earlier age is gathering momentum.

It would seem fair to assume that many of these people would have low balances. After all, their decision to opt to self manage their superannuation at this stage of their life has, in all likelihood, coincided with marriage, the purchase of a house and the pitter patter of little feet, so there would be strong demand on their financial resources.

Yet they have still decided to set up a SMSF; they want control over their superannuation. Having made this decision I find it hard to believe the vast majority have not done their homework and compared the different superannuation options, from SMSFs, to APRA-regulated funds, to RSAs, including the cost, suggesting for those with low balances control is more important than fees.

No doubt many of these trustees outsource much of their advice, whether it's accountancy, auditing, or investment strategy; time is a luxury many don’t have. Inevitably that drives up their cost – but that’s the price they are willing to pay.