For super funds and their advisers

SMSF growth and digital challenges confront industry

James Leplaw

(Pictured: James Leplaw)

Research by Eureka Report, the News Corp investor newsletter which is about to enter the SMSF platform market through a deal with OneVue, raises doubts about the sector’s future allocation to direct shares and offers hope to fund managers who have largely missed out on the rapid growth in SMSFs.

In a timely presentation to the Fund Operations Summit for asset managers in Sydney on October 28, James Leplaw, publisher and general manager of Eureka Report, said: “We expected everybody we surveyed to want to get into direct shares, but that was not the reality.”

Eureka Report, which was acquired last year by News Corp from interests associated with founder Alan Kohler, surveyed several thousand SMSF trustees earlier this year, consisting of both Eureka Report subscribers and non-subscribers. The differences between the two groups were marked.

About 85 per cent of the newsletter subscribers owned direct shares but only 30 per cent of the non-subscribers. The newsletter is a paid subscription service which does not provide much information on managed funds. It is primarily about macro issues and stocks.

When asked about their future allocations, however, the SMSF trustees in aggregate were likely to increase their managed funds exposures relative to direct shares. A total of 38 per cent said they would keep their direct share allocation the same and 26 per cent said would increase it. Fifty per cent said, however, they would keep their managed funds allocation the same and 33 per cent said they would increase it.

The results contrasted with evidence from AMP, which is the biggest administrator of SMSFs in Australia, which showed that SMSFs held only between 8-15 per cent of their assets in managed funds. At the same session at the summit, Tim Keegan, the head of SMSF for AMP Capital, said: “We have been disrupted and we have been unsuccessful in capturing much of this growth market.” He said the lack of trust by the general population in financial advisors and the financial services profession in general was a contributing factor in the poor acceptance rate for managed funds.

“The US research, with the ‘trust index’, lists a lot of professions and it shows that financial services professionals are ranked just below real estate agents.”

Connie Mckeage, OneVue’s chief executive, chaired the session, which also included Ian Macoun, the chief executive of multi-affiliate manager Pinnacle Investment Management. She challenged the audience to become engaged with younger investors – generations X and Y – whose investment behaviours would be very different from their parents and grandparents.

“The people who are making the decisions in the back and middle offices of funds management companies are not the digital investors. This is a real challenge for the industry. Where super funds will be in the next 10-20 years is not where our  thinking is at… We know intellectually what we should be doing but it is hard emotionally to make the change.”

Younger investors, who are active in the digital world, for instance, are not as interested in dividends from their investments – rather they are looking for earnings growth.

Macoun, however, was optimistic about the future for specialist fund managers because of the increasing complexity of investment requiring expert management. “I think the big retail platforms have the most to lose,” he said. “They are the ones who can be done away with… People will need more sophisticated investment management than they did in the past but distribution will change radically.”

The summit, produced by Laurence Jarvis’s Fund Operations Network, complemented one held in Melbourne in May this year, which focused on investment operations for super funds and other asset owners.

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