Member direct strategies may backfire on industry funds
Industry funds which seek to counter member leakage to self-managed superannuation funds (SMSFs) by offering member direct investments (MDIs) may ultimately find that the strategy has the opposite effect, according to a new white paper examining superannuation industry trends.
The white paper, developed by specialist technology firm, Bravura and which will be published in Money Management's sister publication, Super Review, warned that it was entirely possible that member direct investments could backfire on industry funds by providing members with a taste of independence.
The white paper said that while member direct investments capabilities were being marketed as providing members with the ability invest directly with assets such as shares and term deposits, they were complex and costly to implement and were of questionable efficacy.
"The efficacy of MDIs is questionable as they do not serve to cut the tie with a major institutional provider or provide direct control and ownership over superannuation, which is often a powerful source of motivation for those choosing SMSFs," the analysis said.
"It is also 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 an SMSF further down the track."
The white paper acknowledged a recent dip in the number of SMSF accounts being established, but suggested that this could just easily be attributed to the economic cycle as it could to the efficacy of MDIs.
"… The jury is out on the success of these solutions. Anecdotal feedback suggests the take-up has been relatively low against the costs and increased risks assumed by the funds," it said. "Super funds need to start thinking outside the square with respect to SMSFs. Astute funds are seeking to share in the fruits of the SMSF market, not by directly competing with it, but by servicing it with likes of investment offerings."
Recommended for you
Financial Services Council chief executive, Blake Briggs, is urging Minister for Financial Services, Stephen Jones, to take advantage of the QAR opportunity to reduce regulatory duplication and ensure advice is affordable.
Former chair of the House of Representatives’ Standing Economics Committee, Tim Wilson, is planning a return to politics after losing his seat in the 2022 federal election.
Morningstar is going to offer research ratings of funds in the $3.5 trillion superannuation sector for the first time in response to demand from financial advisers.
Treasurer Jim Chalmers has opened a consultation into the design of the annual superannuation performance test, canvassing views on a range of reform options.
