Millennials are signing up for SMSFs at record rates. But are they getting the right advice?

SMSF

Been thinking more and more about your superannuation recently? Well if you’re a young person, you’re definitely not alone. Millennials are behind a sudden surge in SMSF sign-ups, quickly becoming the fastest-growing age cohort in the industry, with Gen Z coming close behind.

New data from AUSIEX (Australian Investment Exchange Limited) has shown that the rate at which millennials are establishing Self-Managed Superannuation Funds in 2020-2021 has doubled since 2016-2019, and is more than 5 times the rate seen in 2013.

These aren’t the only revelations nestled in the data, which provides plenty of insight into what’s driving the surge and the kind of potentially problematic trading behaviour that millennials are bringing to the table. 

Millennials are more likely to be active traders. 

One of the key takeaways from AUSIEX’s data is that the traditional ‘out-of-sight, out-of mind’ approach to superannuation is changing, with SMSF owners now 30% more likely to engage in active trading than non-SMSF accounts.

As millennials have flocked to Self Managed Superannuation Fund’s over the last two years, this trend has only increased. According to a number of experts, including The AFR, this is being driven largely by the popularity of highly accessible app-based trading platforms, or ‘Neo-Brokers.’ 

Read More: Three Ways that Millennials are Shaking Up The Business Financing World

Widely publicised market events like The Gamestop short squeeze and the highly volatile cryptocurrency environment have shown young people that they can stand to gain by getting more involved with financial trading. Yet this combination of easily accessible platforms and cultural zeitgeist also promotes higher-risk trading behaviour that’s often more akin to gambling.

Without the right advice, this could become an issue for young people.

Taking a high-risk approach isn’t inherently bad or wrong, but it’s definitely not a good fit for superannuation. It is supposed to be your retirement fund, after all. And there are troubling signs that many young people are certainly bringing this higher risk approach to their SMSF accounts. 

Worryingly, the AUSIEX data also showed that millennials and Gen Z investors have a significantly lower amount of ETF (Exchange Traded Funds) investments than other age groups. ETF stocks are widely considered to be a key way of diversifying your portfolio in a volatile environment, and a lack of diversification often signals a lack of professional oversight.

If ambitious young people aren’t seeking the right advice to keep their superannuation trading in check, they could risk gambling away their retirement savings on an increasingly volatile market. 

I remember a piece of advice that ASIC published a long time ago – if an investment seems too good to be true, it generally is. For instance, thousands of people are still investing in cryptocurrencies, expecting to become instant millionaires. Yet The RBA is warning right now that it’s heading for yet another massive crash.

Changing regulations and cheaper compliance costs are also driving factors

Another likely key factor behind the SMSF surge has been regulatory changes by the federal government that have brought superannuation back into the public eye. 

AUSIEX chief executive Eric Blewett speculated to The AFR that the Morrison government’s controversial superannuation reforms, which include a new annual performance test and online super fund comparison tool, has sparked a renewed national interest around fees and fund performance.

Read More: Talking Super with David Meffert.

Changing advice around compliance costs is also likely to play a big part. For a long time, ASIC’s advice has been that SMSFs cost around $13,900 a year to maintain, requiring around 100 hours of work. Yet data released last year by the ATO showed that the median operating cost for SMSFs is only $3923 a year, almost $10k less than ASIC’s estimate! 

Nearly half of SMSF accounts are unadvised, yet experts agree that quality advice is needed.

Although the SMSF environment is currently being defined by active trading and shifting expectations around compliance, it seems many Australians are still not seeking the proper advice. 

Only 53% of SMSF accounts are advised or on an advised platform, leaving a whopping 47% of accounts currently being directly held. With young people driving the surge in sign-ups, the data suggests that millennials likely make up a large number of these unadvised accounts.

Read More: Not Planning To Seek Advice? Here’s How Much Money You’re Losing. 

Speaking directly to AUSIEX, a number of industry professionals have expressed concern about this situation, emphasising the need for quality advice that takes the needs of young people into account. 

Peter Burgess, Deputy CEO of The SMSF Association, clearly outlines the value of receiving quality advice around compliance and administration:

“We know from research that they [compliance and administration] are the two biggest pain points for SMSF trustees, particularly younger individuals who may not be as experienced when it comes to administration and making investment decisions,” said Mr Burgess.

“We do expect continued strong growth in the SMSF sector into the future. However, it’s certainly not about the SMSF sector becoming the biggest in the superannuation industry. It has always been about ensuring that the right people have SMSFs and that they have access to quality advice.”


I hope this superannuation market update has been useful information for you. 

If you’re a young person who has recently entered the world of Self Managed Super Funds, I recommend getting in touch with one of the experienced financial advisors at Rees Group, the big brother of Ezytaxback. Our advisors have specialist SMSF knowledge, and we’re experienced at working with clients of all different ages and backgrounds.

Trying to forge ahead in the trading market without advice on compliance and investment strategies is simply not a good idea, even if you’re feeling very confident. Don’t risk it, and seek out some advice instead.

The information in this article is of a general nature. It does not take your specific needs or circumstances into consideration. You should look at your own financial position, objectives and requirements and seek financial advice before making any financial decisions.

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