Lower super fees may drive SMSF closures

06-Nov-2014

By Krystine Lumanta

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Reduced fees in Australian Prudential Regulation Authority (APRA)-regulated funds could result in self-managed super fund (SMSF) closures, according to the latest research from CoreData.

The 2014 “Member Retention Report” revealed close to half, 47.3 per cent, of SMSF members were likely or very likely to close their fund and move to an APRA-regulated fund for lower fees and charges.

In addition, direct investment options offered by APRA-regulated funds could also be a way to attract SMSF members, with 42.5 per cent of respondents indicating they were likely or very likely to move to an APRA-regulated fund that offered the same ability to invest their money.

The report found close to two in five respondents were likely or very likely to move to an APRA-regulated fund if it was suggested by their financial planner or accountant, 39 per cent and 37.7 per cent respectively.

It also said SMSF services in an APRA fund were desirable.

As funds looked to offer members a greater range of services and focused on tools to stem the leakage of assets and members to SMSFs, 80.9 per cent of those who intended to move to an SMSF said they would be likely or very likely to consider using their APRA-regulated fund as an SMSF service provider if they were to offer that service.

Members of corporate super funds were the most likely to be attracted to SMSF services, with all respondents stating they were likely or very likely to consider using their fund as an SMSF service provider if they were to offer that service.

“Switching risk is highest among corporate super funds, which is really symptomatic of a mobile workforce, while for retail funds the threat is that members are more likely to leave to an SMSF,” CoreData head of financial services Kristen Turnbull told financialobserver.

“The threat of defection to SMSFs appears small if you look at the proportions of members leaving, but it's important to remember that these are often the members with the highest balances so their defection can have a large impact from an asset-base perspective on the fund they leave.”

High fees and charges were the most likely to drive future switching intention, with 32.8 per cent of those intending to switch citing that issue as a factor, up from 29.6 per cent in 2013, the report said.

The next most likely drivers were poor investment returns at 30.3 per cent and the view that an SMSF was a better option at 24.6 per cent, both of which were up from last year from 19.6 per cent and 17.6 per cent respectively.

Compared to last year, friends and family were less influential in switching decisions at 10.7 per cent, from 16.7 per cent in 2013.

The research was conducted in August using a sample of 834 valid responses from Australian consumers who were members of an industry, retail, corporate or public sector fund or an SMSF.

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