Advisers and clients the best judges of SMSF appropriateness

The appropriateness and desirability of self-managed superannuation funds (SMSFs) are matters for clients and their advisers to work out, and ought not be determined by Government reports or industry bodies utilising generalised figures, according to the chief executive, of automated investment management company, Six Park, Pat Garrett.

Writing in a column, Garrett argued that notwithstanding its good intentions the recent Productivity Commission (PC) report into superannuation had unfairly singled out SMSFs and had therefore risked tarnishing what could actually be the best option for many Australians looking to maximise their superannuation.

Discussing the PC, he wrote that there had been much discussion about whether or not a minimum balance for SMSFs would be recommended, with many predicting the Commission would set the benchmark at $1 million.

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“Thankfully, the final report didn’t end up recommending a minimum fund size but there were references to SMSFs under $500,000 with question marks placed over their performance. This is both frustrating and an overly simplistic conclusion,” he wrote.

“Each client is different and should be treated as such. A SMSF may not be the best choice for someone with $1 million but it could be the perfect solution for someone with under $200,000 – or vice versa! Or for two people who look almost identical on paper, a SMSF might be right for one and not the other depending on their future needs, timeframes and risk preferences,” Garrett wrote. “That’s for advisors to help their clients figure out – not for reports, industry bodies or governments to infer by utilising generalised figures that do not present apples-for-apples analysis.”

He said the PC report’s recommendations were based in part on costings that didn’t consider newer, more cost-effective and professional services that exist in the industry.

“Whether via an advisor or using online administration and/or investment management, there are options out there now that significantly reduce the costs of running a SMSF – and these options seem to have been entirely overlooked in the Commission’s figures and assumptions,” Garrett claimed.

“High fees and poor diversification have been the primary causes of poorer performance in smaller-balance SMSFs in the past, but technology is now allowing people to create SMSFs that are internationally diversified and expertly managed at a lower cost point,” he wrote. “By not factoring in these developments, the report is not accurately representing what’s possible with a SMSF set-up today. “




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fair points here. the minimums in principle are silly. There is a reason however, as Accountants and FP have licked their lips as its easy money, for example opening a SMSF and using a Wrap?!? This was Count Financial MO with their clients and they paid circa $12-15k needless extra in fees p.a.within a SMSF because it was Licensee policy not to allow direct shares and Wholesale managed funds. residential property in SMSF, is a hard one to defend as a good strategy. That's the next industry blow up, mark my words.

In theory, I agree with the views expressed in the article. Every financial decision should be best made between a client, and their competent and honest financial adviser.

But in practice, it does not match the reality of what is happening. It is common knowledge that over the last decade or so, there have been a very large number of SMSFs (often set up in association with property spruikers) that are not appropriate for the clients. These clients were "advised" to set up SMSFs, sometimes with as little as $30,000. Where I work, we have several hundred SMSF clients. In my opinion, 95% of those people should not have SMSFs, and most of these people are worse off (sometimes very significantly) than if they never had a SMSF.

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