SMSFs: Low balance, low satisfaction

Satisfaction with self-managed superannuation funds dropped in the last 12 months, particularly for those with a balance of less than $250,000.

Latest insights from Roy Morgan show that while satisfaction with the financial performance of SMSFs is down across the board at 82.7%, those with lower balances are the least happy.

Just 55.2% of members with balances between $100,000 and $249,000 reported being satisfied with the performance of their SMSF. This represents a decline of 18.3 percentage points compared to the June 2017 figures.

The decline in satisfaction is interesting in the context of the Royal Commission and the Productivity Commission's draft report, both of which brought appropriate minimum balances for establishing an SMSF into the spotlight.

In July 2015, ASIC released guidance for AFSLs and financial advisers providing SMSF advice, highlighting that in many cases a recommendation for a retail client to set up an SMSF with a starting balance of $200,000 or less is unlikely to be in the client's best interests.

The PC draft report noted that SMSFs are not cost-effective for low balances, with APRA-regulated funds proving more feasible.

"By contrast, costs for low-balance SMSFs are particularly high, and significantly more so than APRA-regulated funds. These high costs are the primary cause of the poor net returns experienced by small SMSFs on average," the report states.

Lower costs may be why satisfaction with industry super funds increased across all balance segments in the past 12 months. Overall, 87.5% of members reported feeling satisfied with their fund's performance.

According to Roy Morgan, industry fund members with a balance over $700,000 reported a 9.5 percentage point rise in satisfaction. This was followed by a five percentage point jump in the $250,000-$699,000 segment, and 4.4 percentage points for those between $100,000 and $249,000.

Retail funds saw gains in the under $5000 segment (10.9 percentage points) and the $700k and over segment (1.6% percentage points). Retail funds saw losses across all other cohorts.

Roy Morgan industry communications director Norman Morris said: "The superannuation sector is currently receiving a great deal of adverse publicity in the finance Royal Commission, particularly in relation to fees, advice, minimum balances for self-managed super, industry funds etc."

He added that superannuation satisfaction is a vital part of understanding the behaviour of members; historic levels of engagement indicate they are unlikely to be reading performance tables.

"It is more likely that it is how they feel regarding the performance of their fund that will ultimately determine their actions," Morris said.

Read more: Roy MorganRoyal CommissionASICNorman MorrisProductivity Commission
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