SMSF growth could damage sector through poor knowledge

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The growth of the self-managed superannuation funds (SMSF) sector could be damaged by the failure of fund members to properly manage the funds and their holdings, according to Centric Wealth. 

Centric Wealth chief executive Phil Kearns said the growth in SMSFs has been attended with a lack of awareness of what is required and this could cause problems for fund members and create further strain on the nation’s retirement budget. 

According to Kearns, many SMSF fund holders believe running an SMSF correctly means ensuring the right investment strategy is in place, but he doubts whether the ballooning numbers of fund members have the skills to operate these funds. 

He said recent research from the SMSF Professionals’ Association of Australia (SPAA) showed that a further 1.4 million people were thinking about setting up an SMSF in the next three years. 

“This will mean the number of self-managed retirees will swell to almost 2.5 million. Is it likely that all these people will have the knowledge, experience and time needed to manage their SMSF effectively? In my view, this could create a number of problems for the individuals and the Government, who may end up financially supporting these people down the track,” Kearns said. 

“While many SMSF trustees are highly proficient at managing their strategy, compliance and investments, others may not appreciate the complexities involved or the implications of the role of being a trustee.”    

According to ATO statistics, the SMSF sector is currently worth $500 billion and has nearly one million trustees. Kearns said the Government should be providing more education to those potential SMSF trustees. 

“If the Government does not act on this issue now, they could find vast numbers of Australians retiring without adequate retirement savings. This will mean strain on the nation’s Aged Pension budget,” Kearns said. 

“Ensuring that anyone setting up an SMSF has the right knowledge - or the right support by way of an appropriate qualified financial adviser - is the first step in avoiding the pitfalls of running their own fund.”  

However, more help may be at hand for potential trustees, with polling conducted by SPAA indicating that one in four accountants who are members of the association and not operating under an Australian Financial Services Licence (AFSL) will move to be licensed in some way. 

SPAA head of education services Liz Ward said the poll respondents would either apply for a limited licence or become an authorised representative (AR) of a licensee.  

Ward said a further 50 per cent of SPAA members who are not licensed accountants are “seriously considering this option”, with a further 25 per cent indicating they would not apply for a limited licence or become an AR. 

“In SPAA’s opinion those who elect to be early adopters of the new regime and formally move into the SMSF advice space (via AFSL or AR) are likely to realise commercial benefits compared with those who come to it late. We are hearing of a number of accountants who are actively positioning their business based on their 'SMSF expertise’. 

“As an association dedicated to SMSF professionals and the provision of quality advice to trustees, we think it is great that there are many accountants that have already formally committed themselves to being in this sector. 

“We would encourage those who are thinking, but yet to decide, to research their options - and if SMSF advice is part of their business future, to take the lead and start moving in that direction,” Ward said.

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