This article appeared in the May 2013 ASX Investor Update email newsletter. To subscribe to this newsletter please register with the MyASX section or visit the About MyASX page for past editions and more details.
New technology tool helps trustees learn from well-performed self-managed super funds, says SelfWealth's Andrew Ward (pictured).
There were 909,188 members of self-managed superannuation funds (SMSFs) at June 2012, Australian Tax Office data shows. Also, SMSFs held the largest proportion of superannuation funds - 31.5 per cent, or $474 billion - at December 2012, according the Australian Prudential Regulation Authority (APRA).
Whichever way you look at it, there has been an extraordinary boom in SMSFs in the past decade as more investors seek greater control of their retirement savings. Based on ATO and APRA data, SMSF growth has been especially strong in the past three years and shows no signs of slowing.
As more SMSFs are established, it is likely that new models of investment information will emerge to help trustees with their investment strategies. Although a range of service models for SMSFs are available, investment information for SMSFs has tended to follow the traditional path of costlier full-service advice, or much cheaper online service with limited or no advice.
Andrew Ward, managing director of SelfWealth, a new information tool for SMSFs and any self-directed investor, believes social media can radically change how SMSFs determine and implement their investment strategy.
As the SMSF community grows ever larger, Ward says more trustees should be able to share their strategies and ideas, just as other communities or user groups do by using social media tools. The same applies for share investors who want to compare portfolios.
SelfWealth essentially has three parts: the first is providing a portfolio report based around an SMSF's existing stock holdings. For example, a fund that holds a dozen stocks through a discount broker will get a report showing the portfolio's holdings, risk profile and a comparison with similar SMSFs, in turn helping the SMSF to better understand its relative performance and profile.
Second, the SelfWealth community allows users to compare themselves to peers. For example, a 70-year-old SMSF trustee could compare their fund with information from members with a similar demographic and risk profile, and common investment goals. The service is anonymous; members do not divulge their personal details but rather provide high-level data that creates sample portfolios for the community.
The third part is being able to follow SMSF trustees and professional investors through the SelfWealth community. A trustee might, for example, like a particular SMSF's investment strategy and holding, and think it would be useful for them. Or they could follow what two professional investors are buying and selling for their SMSF. Again, it is an example of a community using social media to help other users, without divulging personal details.
ASX Investor Update consulting editor, Tony Featherstone, asked Andrew Ward about some of the main problems with current SMSF information models and how social media can help an SMSF or any self-directed share investor.
ASX Investor Update: Andrew, what do you see as the biggest problem when sourcing information on an SMSF investment strategy?
Andrew Ward: In the traditional full-service model, fund managers run portfolios, financial advisory firms provide advice, and online platform tools provide portfolio administration and reporting. But that comes at a cost, and many SMSFs have decided they want to minimise fees by setting up a fund and using a discount broker. They have gone from lots of advice to limited or no advice, even though many SMSFs probably need something in the middle: sufficient advice at a lower cost.
ASX Investor Update: SMSFs that do everything themselves must, at times, run the risk of information overload if they subscribe to all sorts of information services or follow media reports. Wouldn't using social media just add to information overload?
Andrew Ward: A good point. You see lots of SMSFs subscribe to multiple investment newsletters or use media and broking reports to help them make decisions. The result is they become overwhelmed by all the differing views and do not know which ones to follow. By using social media, SMSFs can track real portfolios, follow their performance and decide which ones to follow. That is a lot easier than reading 10 different opinions on a stock and deciding which ones to act on.
ASX Investor Update: In your experience, do enough SMSFs track their performance against other superannuation savings vehicles?
Andrew Ward: No. Trustees should take a portfolio approach to SMSF investments that considers asset allocation against the fund's investment objectives, understands the risk inherent in the portfolio, and tracks performance over time. We see a lot of SMSFs that have a diverse collection of stocks held through an online broker. They have not thought about how those stocks fit together, or the risk in the portfolio, or how their SMSF compares to those held by similar investors. They may look at the absolute return on the stocks in that year, but what really matters is how that return compares to others, and the risk taken to achieve it.
The next step is comparing that performance to other forms of superannuation savings. There is no point setting up an SMSF to save on fees if you constantly underperform other superannuation vehicles, such as managed funds. SelfWealth has created an index (the SW200) to compare the performance of SMSFs in our community to the ASX S&P/ASX 200.
ASX Investor Update: It seems that regulators are, quite rightly, focusing more attention to SMSF investment strategies, to ensure they are appropriate for the trustee(s). Does this put more onus on getting appropriate information to develop and monitor an SMSF investment strategy?
Andrew Ward: Yes. The days of buying a collection of stocks and sitting on them forever are long gone. SMSF trustees need to show they have considered asset allocation within their portfolios, overall risk levels, and absolute and relative performance. They need very clear portfolio reporting, even if they are not using an online platform or full-service advice. This is a key reason why SelfWealth provides online portfolio reporting services for the community.
ASX Investor Update: Other than chat rooms, we have not seen social media used extensively in the investment industry, in respect of a large community of investors going online to help each other. Does social media have a natural fit with SMSFs?
Andrew Ward: Through social media tools, a large community of SMSFs can help each other, potentially improve performance, minimise costs, and enjoy the experience at the same time. Following how other SMSFs and professional investors are managing their investment savings is quite interesting and potentially a useful tool to share knowledge across a large community of users. We have been surprised by the interest from Gen X and Gen Y investors who understand the power of utilising the wisdom of the crowd, and technology, to grow their SMSF.
ASX Investor Update: Is SelfWealth the first to use social media to help SMSF trustees?
Andrew Ward: Obviously, social media is used in different ways in the investment industry, from chat rooms to Facebook pages, Twitter and the like. But we have gone several steps further and created a tool to connect SMSFs and help them help each other, through the power of social media. Australia has a very large and growing community of SMSFs. There seems an obvious need to use technology to connect them and fill the void between full-service advice and online or discount broking.
ASX Investor Update: Where can investors get more information on SelfWealth?
Andrew Ward: Visit SelfWealth's website to learn more about the tool and its pricing package. As with any online community, the more people who use it, the more powerful it becomes. We have had a lot of interest so far from SMSFs and product providers, such as BlackRock for their exchange traded funds.
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