Has PC opened SMSFs to attack?

30 July 2018

The self-managed superannuation funds (SMSF) sector risks being attacked by other segments of the superannuation industry because of the Productivity Commission’s (PC’s) draft report findings that SMSFs with less than $10 million in total assets have lower returns than some Australian Prudential Regulation Authority-regulated funds.

That is the warning from Chartered Accountants Australia and New Zealand, which has directly questioned the PC’s methodology, particularly its use of total returns to assess fund performance.

At the same time, the accountancy body has warned the PC against reading too much into the establishment of smaller SMSFs, in circumstances where its members had told it that the majority of smaller balance SMSFs were established for a specific purpose and would not have a low balance for an extended period of time.

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“The continuing publicity about poor behaviour within large financial organisations, including industry funds, directly and indirectly also encourages consumers to take control of their own retirement affairs,” it said.

In a submission responding to the PC, Chartered Accountants ANZ said that, ideally, the PC needed to adjust its assessment process and be open to revisiting some of its initial conclusions.

“We are concerned that the Commission’s findings about the SMSF sector – especially that SMSFs with less than $10 million in total assets have lower returns than some APRA-regulated funds – may be used by others to attack that sector primarily for competitive reasons,” the Chartered Accountants ANZ said.

The submission argued that while the PC’s use of net total returns represented a popular methodology, the deficits needed to be understood.

“… a focus on total return figures makes it easier to charge fees based on a percentage of assets under management, especially within a unitised investment fund,” it said. “And it encourages greater turnover of assets as investment managers will attempt to chase the ‘in your face’ capital returns rather than the more sedate, significantly less exciting, income returns.”

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Finance Theory 101 is that you look at risk adjusted returns as your guide. In none of these government reports from any agency have I seen this mentioned, it's all just looking at nominal returns. It's a disaster all the fear mongering these agencies and the media are creating. Perhaps every Australian should just go set up an SMSF, that would take these mandarins out of jobs, they'd have nothing to prognosticate on. Treasury is now suggesting CIPRs should be designed so that no advice is required, except maybe intra fund advice. The insto's will love that, charge whatever they want with no advice protections.

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