ASIC reinforces folly of low-balance SMSFs

Amid continuing disagreement with the Australian Securities and Investment Commission’s (ASIC’s) assessment of the appropriateness of self-managed superannuation funds (SMSFs), the regulator has provided Parliament with data confirming that low balance SMSFs generate sub-optimal outcomes.

Answering a question on notice from Labor member, Andrew Leigh ASIC made clear that self-managed funds with balances less than $200,000 could be problematic.

It said that for the period 2016-17 (and the preceding two financial years), SMSFs with a balance of less than $200,000 had a negative return on assets (ROA) when compared to SMSFs with a balance of more than $200,000.

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Further, ASIC said that in 2016-17, the ROA for SMSFs with a balance of more than $100,000, but less than $200,000 was -0.48%, whereas the ROA for SMSFs with a balance of more than $200,000, but less than $500,000 was 4.65%.

ASIC in early October caused consternation in the SMSF sector when it issued an SMSF factsheet alongside a warning that investors establishing their own SMSF needed to be aware of the potential downside of such a strategy.

It argued that its research had found that SMSFs were not suitable for members with a low fund balance, particularly where they had limited ability to make future contributions.

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Could it be that clients that have more money and pay for advice are getting better outcomes? I thought i read a report that advised clients were better off.
We can't have people increasing their wealth. Lets make personal advice more expensive and difficult to get so less people get advice - said no responsible government ever.

The expense (and hence return) data which ASIC is relying on is via the Productivity Commission and is a direct and simple take from records of expense claims within the individual SMSFs. The reality is much more complex. SMSFs with geared properties will have significant interest expense, and so the net return will be lower. Depreciation and other allowable deductions will also reduce reported returns, as will investment in assets with deferred tax characteristics . Such distortions are are amplified when the fund contains a long term asset like property, which may or may not be revalued in any particular year. Many SMSFs, particularly those managed under the auspices of accounting firms have significant cash balances. These would also be expected to have lower returns. ASIC is telling half truths. It has made no attempt to actually review real data - relying instead on data from the productivity commission, which itself made clear the fact that the data was difficult to draw conclusions from. Moreover, using data from one year is simply reckless. SMSFs are not ASICs domain to regulate, and it is without authority, grossly extending its regulatory ambit.

Would I be misunderstood if I said this is simply ASIC now going after the FUM in SMSF's on behalf of Industry Super? Retails done.

Certainly smells like it. Danielle Press started off with a market pedigree, but spent years in industry super. Karen Chester is an acolyte of behavioral economics, which is the port-modern/neo-marxist branch of the discipline. It's basic presumption is that people cannot think for themselves.

First ASIC dares to suggest that accountant advice may not be the superior paragon of virtue former ASIC Chairman Medcraft actively promoted it as. Then ASIC has the temerity to suggest SMSFs may be leading to sub optimal outcomes!

Clearly there has been a changing of the guard at ASIC. And not before time. Let's hope we see some action from ASIC to crack down on accountants that have recommended (or implemented without due care) inappropriate SMSFs.

Expensive, badly managed, SMSFs are creating far worse outcomes for consumers than the old style AMP/MLC products ever did.

what is really annoying about these dart-board stats is they would be composed of 'convenient' data that bares little if any resemblance to a apple-4-apple comparison? they just don't give up do they? its basically like Sly Stallone in Judge Dredd - judge, jury, executioner all-in-one with this mob.

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