As more financial advisers moved into the SMSF space, the industry could experience growth in interest for segregated and hybrid funds, according to Bravura Solutions.
“These advisers are comfortable with the concept of segregated assets and are familiar with the many advantages they offer,” Bravura Solutions principal consultant David Barrett said.
“Currently in Australia, anecdotal evidence suggests that only a very small percentage of SMSFs, less than 10 per cent, are segregated.
“This figure is in stark contrast to retail and industry-based superannuation funds where each member’s assets are kept segregated from all the other members of the fund.”
Pooled funds were more straightforward than segregated funds and made a lot of sense where the trustees shared the same life phase, risk profile and preferred investment strategy, Barrett said.
However, for SMSFs with a diverse mix of trustees, misconceptions about complexity and cost might be leading them to forgo the considerable benefits of segregation, he said.
“When I dug a bit deeper, I found some possible reasons why trustees were being discouraged from establishing a segregated fund,” he said.
“It would appear that some SMSF administrators lack the experience and knowledge to administer segregated funds and prefer to stick to familiar territory.”
Furthermore, some continued to rely on traditional software administration programs that could not adequately cater for the segregation of assets within a fund.
Barrett said many administrators continued to use general ledger packages that were suited to straightforward pooled funds and could not readily service the needs of segregated funds.
“To accommodate segregated assets, additional work has to be done outside of the accounting package, usually via a spreadsheet, in order to record income, changes in market values and asset values,” he said.
“Invariably, this additional administration leads to increased costs.
“Yet there exists within the marketplace, leading private wealth administration software packages that are designed to support the segregation of assets within SMSFs – simple to use, this software can effectively keep the complexity and costs of segregated funds down, while delivering the trustees significant benefits.”
He said while a segregated or hybrid fund might not be for everyone, the trustee’s choice should be based on the relative merits of those approaches, not constrained by the software limitations of their fund administrator.
