The latest insights into the SMSF sector have revealed trustees are approaching risk management of their fund from a macro perspective rather than assessing it from the individual components involved.
Research carried out by CoreData showed the most important element to trustees when developing an investment strategy or asset allocation for an SMSF is the overall risk of the portfolio, with almost half of the individuals surveyed, 45 per cent, purporting to adopt this approach.
The second most critical risk management factor among SMSF trustees was that of the fund’s investments, with 40 per cent of participants admitting this to be the case.
Trustees were very conscious of portfolio diversification as well, with 36 per cent of respondents saying asset allocation across a broad range of investment categories was key and another 35 per cent indicating diversification of the fund’s investments was crucial to the mitigation of fund risk.
With regard to more individual elements, only 20 per cent of survey participants nominated the age of the fund’s members as a critical risk management aspect.
“I think trustees are getting much more support from their advisers and accountants these days in this area of understanding what portfolio risk is [as opposed to] the individual investments’ risk,” CoreData senior executive Grahame Evans noted.
“[Ranking down the bottom] is the age of the [fund] members and the risk profile of each member of the fund. So it’s obvious the risk is looked at [from a perspective of] the fund overall; it’s not [assessed] at the member level.”
While the overwhelming reason for establishing an SMSF confirmed by the study was control, Evans acknowledged a small increase in two other motivational factors he considered significant.
“There has been a slight increase in people moving to set up self-managed super funds [to reduce] cost and of course [the ability to hold] investments in direct assets. [The industry knows] we’re getting more and more direct assets [on offer] and [they are a great item] to be able to invest in through a self-managed super fund,” he said.
