The greater the number of members in an SMSF, the more risk averse they become, according to a new research report – Gender and group bias in SMSF allocation – from SuperConcepts and the University of Adelaide’s International Centre for Financial Services.
SMSF funds with more members tend to shun riskier equity markets and invest more heavily in cash, a lower risk asset class and one that more investors are familiar with.
The report also suggests men are bigger risk takers than women with male SMSF members holding a greater share of their assets in higher-risk investments, such as domestic shares and property, than women.
SuperConcepts General Manager of Technical Services and Education Peter Burgess said the results were interesting as they highlighted two complimentary behavioural factors – gender bias and group behaviour – that have a significant influence on the way SMSFs allocate their assets.
“This research is important as awareness leads to action. If trustees are aware of their biases they can try to overcome them. This will go a long way towards making sure any investment decisions they make are in their best interests and will meet retirement and other long-term financial goals.”
Using longitudinal data on 20,121 SMSFs between 2008 and 2015, the report shows cash holdings have experienced a decline in weight since 2008 – from 23 per cent in July 2008 to 15 per cent in July 2015. Meanwhile allocation to property and domestic shares has been relatively stable.
Commenting on the findings Mr Burgess said, “While SMSF funds with more male members tend to invest in more risky assets, our findings also show that funds with a greater number of members tends to prefer safe allocations by investing more in cash.
“Taken together, these results suggest that gender and group behaviour bias work in opposite directions."
"Lower investments in cash attributed to gender bias get cancelled by group behaviour bias, with the net effect resulting in a reduction in cash holdings over time.
Mr Burgess added, “SMSFs with more members tend to be families and this adds a different dimension. Trustees may be concerned with protecting family wealth and there is often a need to adopt a more conservative approach with decisions when there are multiple people with different priorities involved.”
Professor Ralf-Yves Zurbrugg from the University of Adelaide said academic studies have also shown that the desire for social acceptance leads individuals to behave differently when they behave in a group.
“Group behaviour can either exacerbate or counteract the effects of behavioural biases. In the context of investing, group behaviour seems to encourage less risky positions.”
SuperConcepts is a leading provider of self-managed superannuation fund (SMSF) administration, software and education services to SMSF trustees, accountants and financial advisers, servicing more than 40,000 funds. SuperConcepts comprises a number of sub-brands including AMP SMSF, Ascend, Cavendish, Multiport, Justsuper, SuperConcepts, SuperIQ, superMate, yourSMSF and a part ownership of Class Ltd. Find out more at www.superconcepts.com.au.
About The University of Adelaide’s International Centre for Financial Services:
The International Centre for Financial Services (ICFS) was established to foster excellence in, and improved understanding of, the Financial Services Industry by providing research, study opportunities and industry engagement. Find out more at https://www.adelaide.edu.au/icfs/