A recent white paper on the Australian superannuation industry has suggested member direct investment (MDI) options developed for members of industry and retail super funds in an effort to prevent leakage to SMSFs may actually have the opposite effect.
The Bravura Solutions “Top 10 trends in the Australian superannuation industry: Why funds must bite the system modernisation bullet” paper concluded it was “entirely possible that MDIs will have the opposite effect to that intended, by providing members with a taste of independence that will ultimately encourage the move to a SMSF further down the track”.
In addition, the report questioned the overall effectiveness of MDIs as a counteractive measure to members setting up their own SMSFs as the facilities did not sever existing institutional ties or provide direct control over the retirement savings benefits in question, which were two main objectives SMSF trustees sought.
Bravura Solutions also warned against drawing any link between a slight decrease in the number of SMSF establishments and the effectiveness of MDIs.
“While some point to the recent dip in the number of new SMSF accounts opened as proof that MDIs are working, economic cycles provide just as credible an explanation,” the white paper said.
“When the market provides decent returns, as it has done recently, people are much less likely to move their superannuation.”
Overall, Bravura said it believed the success of MDIs was too hard to measure at this point in time.
“The jury is out on the success of MDI solutions. Anecdotal feedback suggests the take-up has been relatively low against the costs and increased risks assumed by the funds,” the financial software specialist provider said.
As an alternative, the report said larger super funds might experience better success in their SMSF battles by servicing the sector with a raft of investment offerings.
