The self-managed superannuation fund (SMSF) sector has been one of the fastest growing sectors of the superannuation industry over recent decades. So much so that some parts of the industry and retail superannuation fund segments have looked to it for ideas and have been offering members a growing capacity to choose their own investments.
So, what’s on offer?
The options today
A significantly large proportion of industry funds and some retail funds offer member direct options that enable members to choose stocks from the S&P/ASX 200 or S&P/ASX 300, along with exchange traded funds, listed investment companies and trusts and term deposits.
Members usually need to leave a small portion of their balances in one of the other investment options run by the super fund, mostly for insurance purposes, and need to have a certain minimum balance before they are allowed to invest in the option.
HostPlus launched its member direct option Choiceplus six years ago and Hostplus’ group executive, member experience, Paul Watson, says 9200 members are currently using the option which has a total of $434 million in funds under management (of a total $43 billion in funds under management).
“That’s continuing to prove to be a very popular option,” Watson says. “We see a lot of members who like to have a ‘SMSF light’ experience.”
Members must have a minimum balance of $10,000 and keep a minimum balance of $2,000 in a pre-mixed, sector or individual manager option.
Fees for a member direct option will most likely include brokerage fees, which are comparable to cheap online brokers, portfolio administration fees and possibly cash account fees.
The AustralianSuper Member Direct option for example, has brokerage fees of $15 per trade for sums under $5000, scaling down to 0.12% for sums over $50,000. Its cash account fee for the shares, ETFs and LICs option is 0.12% and its portfolio administration fee is $395 per annum.
Hostplus’ Choiceplus has brokerage fees of $19.95 for sums up to $10,000, scaling down to 0.11% for sums between $27,500 to $250,000, and a portfolio administration fee of $180 a year.
SMSFs versus member direct
Member direct options allow members an increasing degree of control over their investment choice. Many options allow members to invest up to 80% of their entire balance directly, with a limit of 20% on any one stock.
That is a lot of control for a superannuation investor looking to exercise choice, but it doesn’t provide members with all the benefits of an SMSF.
“They go part way to being what an SMSF is, but they don’t necessarily give you the full flexibility that an SMSF gives, especially around being able to hold more bespoke investments,” head of policy at the SMSF Association, Jordan George, says.
A member direct option does not enable the purchase of a commercial real property, which is a real attraction for some business owners who decide to set up SMSFs. Nor do they offer the retirement planning or estate planning strategies that are available in SMSFs.
“They are very much an accumulation focus while some of the great benefits of SMSFs are being able to have a really tailored SMSF retirement solution,” George says.
Member direct options could be a good training ground for people wishing to experiment with more control over their investments. Those that like the choice available can graduate to SMSFs and those that don’t can keep with their industry or retail fund.
However, there is now another option that enables SMSFs to invest in some industry fund investment options. HostPlus has been the first fund to do this – through its Hostplus Self-Managed Invest (SMI) – but it is unlikely to be the last if this launch proves successful.
SMI enables SMSFs to invest in six of HostPlus’ 23 investment options, including its balanced option, the indexed balanced option, an infrastructure investment option and a property investment option.
SMSFA’s George points out that asset managers need the scale of being a large pooled environment to invest in some unlisted asset classes. So, opening up these kinds of investment options to SMSFs, like HostPlus has, gives SMSFs a great opportunity.
“In terms of costs SMSFs need to look at them and see if they fit their expectations,” he adds.
Watson says that instead of competing, the SMSF segment and large superannuation funds have a lot to gain from being complementary. He refers to those members having a foot in both camps as ‘dual citizens’ in superannuation.
A ‘dual citizen’ might be an SMSF trustee who still keeps some funds in an industry superannuation fund for insurance purposes.
“In practical terms [the SMI] is demonstrating how SMSFs and industry funds can co-exist for the ultimate benefit of the investor,” Watson says.
In launching SMI, HostPlus wanted to continue a dialogue with members who may have left the fund to establish an SMSF in case they ever decided to re-join the fund once the SMSF had served its purpose for them.
If you’re concerned that an SMSF might be too time consuming, it could be worth trialling a member direct option before you establish an SMSF.
However, if you’re considering an SMSF for other reasons – such as investing in your business’s commercial property or tailoring a unique retirement solution – then you would be better off going straight to the SMSF.
And if you do go down the SMSF pathway, keep an eye out for industry funds offering direct options to SMSFs like HostPlus. These definitely give SMSFs access to investment capabilities that might be difficult for them to access otherwise.