Class breaks down SMSF establishment facts

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New analysis by Class Ltd has revealed some facts about SMSF establishment, including on average balances and diversification.

Related: Fewer than 4,000 SMSFs started in March 2019 quarter

Single member funds have highest average member balance

Though the average fund balance generally increases with the number of members (there is a slight declined from 3 to 4 members), Class found that single-member SMSFs had the higher average member balance for new SMSFs – at around $355,000. The average fund balance for new SMSFs is around $406,000, and the average member balance is around $225,000.

“There has been considerable debate and analysis in recent times around how much money is needed to make establishing an SMSF a viable proposition, taking into account set-up and ongoing costs against likely investment returns,” says Class.

“While many agree there’s no clear cut answer, and applying a hard minimum balance isn’t necessarily helpful or appropriate, one clear advantage of an SMSF is the ability for individuals in a multi-member fund to pool their investment dollars and give fund members more ‘investment clout’.”

High levels of cash quickly decline

SMSFs, unsurprisingly, start with high levels of cash – with 36.4% of assets allocated to cash and term deposits in their first year. However Class finds this quickly declines, leading to a “healthy diversification”.

By the second year of establishment, SMSFs are holding around 22% in cash, having boosted investments in all other asset classes.

Cash holdings continue to decline in following years, reaching around 17.6% within five years of establishment. Class describes this as an “encouraging indication of healthy asset diversification”.

“It’s worth bearing in mind that these initial high levels of cash and term deposits may lead to lower fund returns for the first year of establishment – a factor to be taken into account when debating viability and return of new SMSFs.”

Age of new SMSF members

Class found that the average age of someone establishing an SMSF was 48.9. There was a small gender difference, with the average male being 49.4, while the average female was 48.4.

Class noted that there is a “continuing trend” for SMSFs to be started by younger members, and suggested that scheduled increases to the Super Guarantee rate could result in this trend continuing.

Number of members for new SMSFs

Class finds that 72.2% of SMSFs are started with 2 members, “making it important to consider overall fund balance, not just individual member balances”.

24.8% of SMSFs start with one member, while 1.4% start with 3 and 1.6% with 4 members. The average number of members for a new SMSF is 1.8.

These figures come from the March 2019 Class SMSF Benchmark Report. The Class analysis is based on 46,943 members, across 26,100 funds established on Class in the five year period from 2014 to 2018.

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