Self-managed superannuation funds (SMSFs) have delivered higher long-term returns than regulated super funds, according to new research.
The SMSF Association said research from Adelaide University’s International Centre for Financial Services (ICFS) showed SMSFs outperformed funds regulated by the Australian Prudential Regulator Authority (APRA) by 1.1% in the five years to 30 June 2024.
The research was a joint venture with the SMSF Association, which said the findings were similar for the five years to 30 June 2023, when SMSFs outperformed by 1.2%, demonstrating a pattern of sustained performance.
SMSF Association Chief Executive Officer Peter Burgess said the research demonstrated the long-term strength and resilience of the A$1.05 trillion SMSF sector.
“SMSFs remain a compelling option when they are used under the right circumstances and managed effectively,” he said in a media release.
A SMSF could be a highly effective structure, particularly when supported by specialist professional advice, for Australians seeking greater flexibility, control over investment decisions, estate planning advantages, and the ability to tailor strategies to their individual circumstances.
But SMSFs were not for everyone, and it was important for investors to do their own research and seek advice.
“This is particularly relevant given recent instances of unscrupulous operators using high pressure tactics, encouraging individuals to establish an SMSF despite it not necessarily being in their best interest,” Burgess said.
The research showed a more significant spread in the range of performance outcomes for SMSFs relative to APRA funds, underscoring the opportunities and risks involved.
The top 25% of SMSFs achieved rates of return of at least 13%, compared with just 9.5% for the top 25% of APRA funds.
“That variability reinforces why professional advice is so critical for trustees,” he said.
ICFS Project Lead George Mihaylov said the APRA funds outperformed SMSFs at the median level, but stronger upper-tail outcomes in the SMSF sector often lifted average SMSF returns above their institutional counterparts.
“However, we also consistently find a smaller cohort of SMSFs that need help, both in the way they allocate their assets and in terms of their scalability,” Mihaylov said.
The Super Members Council (SMC), which advocates on behalf of members of profit-to-member APRA-regulated funds, said anybody considering switching out of these super funds should consider the fact the SMSF Association research showed SMSFs were underperforming at the median level.
SMC General Manager Strategy and Insights Matt Linden said although high net worth people were doing well in SMSFs, people could with lower balances be worse off relative to the regulated funds.
“It can be challenging for SMSFs to stack up for people with low superannuation balances to invest. If they’re switching from APRA-regulated funds the cost can outweigh very significantly the perceived benefits,” Linden said.
The analysis also excluded the effect of insurance premiums, which can be cost-effective insurance within APRA-regulated funds but more expensive in an SMSF environment, he said.
