Yes, SMSF growth really has slowed

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The ATO quietly released its June 2011 SMSF data a week or so ago. This confirmed what we have been saying for a while – that while the SMSF segment continues to grow, its rate of growth has slowed considerably. Moreover, the SMSF growth rate has converged with the growth rate of the large funds universe.

The ATO releases SMSF data for every quarter, but it’s the June report which matters. June reporting is based on actual information from SMSF tax returns, which is why it takes so long to come out (ie it’s now September 2012 and we have just got the June 2011 report).

However it’s real data. The rest are estimates generally extrapolated from the previous year’s trends, and less useful for analysis. Always something to keep in mind when you are using market data to make decisions.

But we can now compare 2011 net inflows for SMSFs with large funds. Hooray! What does it tell us?

Firstly, SMSF net inflows were $21bn, up from $18bn the previous year. Large funds net inflows by comparison were $38.5bn, up from $36bn.

Big numbers, but SMSFs are now a large asset base, so from a trend perspective, we’re just as interested in the organic growth rate; ie how big are SMSF net inflows as a percentage of average AUM?

On this basis, SMSFs net inflows were 5.3% of average AUM, which was essentially identical to the previous year’s rate. That’s not a bad growth rate, but it’s no longer galloping.

Today’s charts show the net inflow trends for both SMSFs and large funds as a % of average AUM. Keep in mind that 2007 is an outlier because of the special tax treatment in that year.

Now that we can fill in the SMSF numbers for 2011, we can see they are consistent with a deceleration over recent years. We can also see that the SMSF growth rate has converged with the large funds growth rate, which has been stable for the past 3-4 years.

And what factors were driving the SMSF organic growth rate in 2011? In fact there was amazingly little change compared to 2010:

– Employer contributions made a slightly weaker contribution, which may reflect the impact of concessional contribution caps.

– Member contributions made a slightly stronger contribution.

– Transfers in and outflows made nearly identical contributions to last year. Of course, because the asset base is rising, a steady growth rate contribution means that both transfers in and outflows are rising quickly in absolute terms (ie ~15% in both cases).

Leakage from large funds, particularly high account balances, continues to power the SMSF segment. In 2011, over $16bn drained from collective funds (by definition, mostly from large funds) into SMSFs. Perhaps not quite the equivalent of a CBUS disappearing this year, but pretty much Victoria’s ESSS.

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