Super market share – is the rise and rise of SMSFs over?

For the past decade, the market share story in super has been predictable, year in year out – SMSFs up, industry funds up, retail funds down, corporate funds down, public funds down slightly.

For the first 8 years of that decade (2004-12), market shares (of super system net assets) moved as follows:

  Source: Tria analysis

With the steep decline of corporate funds and gentler decline of public sector funds a long term phenomenon, the main stories have been the rise of industry funds in the first half of the member lifecycle, and the rise of SMSFs at the expense of retail funds in the second half.

There hasn’t been any obvious change in the competitive landscape which would alter this well-established pattern. But look at the numbers since 2012 and you can see something is changing.

A few weeks ago we pointed out here that outflows from collective super funds to SMSFs seemed to be flattening out for the first time since 2006, and that 2013 had been a year of notable competitive improvement for collective funds.

This aligned with anecdotal evidence from our collective funds clients. They were reporting that outflows to SMSFs were decelerating, and that they were increasingly concerned with major collective competitors, both retail and industry funds.

The Tria Super Funds Review 2014-15, to be released shortly, provides evidence that this is more than a one year blip:

   Source: Tria analysis

There are some notable breaks in the pattern of market share changes in the past couple of years:

• The only constant link with 2004-12 is the onward march of the industry funds – but even here, given potential disruption of the distribution model (despite the best efforts of the Coalition government to self-destruct) no-one in the industry fund segment assumes that will continue forever.
• Retail funds have been static in market share terms since 2012, but that’s actually a big change. Retail had been losing market share rapidly since 2004, at a rate of 0.5-1% virtually every year.
• SMSFs have never lost market share two years in a row since our records commence in 2001, let alone the best part of 1%.

What’s going on?

It’s not just a collectives vs SMSFs story in our view. The stabilisation of retail market share is also about increased competitive effectiveness against not-for-profit funds. In addition to the advantage of large adviser forces, new retail simple super products, supported with digital technologies, are proving very effective in winning individual members and smaller employers from the not-for-profits.

That said, we’re also in a period where the collective funds are doing better as a group. While there is a fairly constant stream of ~50,000 members pa leaving collective funds for SMSFs, net inflows to the SMSF segment have contracted to ~$10bn pa. In contrast, there has been a recovery in member sentiment in collective funds (of all types), and collective fund net inflows have improved, to ~$38bn.

This has coincided with a period of investment outperformance for collective funds. SMSFs are heavily overweight Australian equities and cash relative to collective funds. Where you have wanted to be in the past couple of years has been global equities, where SMSFs are drastically underweight compared to collective funds.

We’re not forecasting this trend to be a permanent reversal. The trend towards individualization remains strong across all industries. But there are more hints here of a competitive fire coming under control, albeit with much backburning still to be done. It may be that we are looking at a topping out of SMSF market share around one third of net super assets.