Law firm Berrill & Watson has called for an update to ASIC guidance’s on the minimum starting balance an SMSF should have in order to be in the best interests of a client.
In a submission to the Productivity Commission, the law firm noted the issue of high costs for low balance SMSFs that was raised in the Commission’s draft report.
“The report noted that the reported costs for SMSFs had increased over previous years, which is consistent with greater complexity, increased compliance obligations and a greater reliance on professional providers such as lawyers, accountants and financial advisers,” the submission said.
“The net returns of larger SMSFs were comparable to institutional funds but SMSFs with less than $1 million in accounts performed significantly worse, largely due to higher average costs.”
The submission noted that the ASIC currently sets the recommended balance threshold for setting up an SMSF at $200,000.
“The Australian taxpayer has a substantial stake in the success of SMSFs by providing concessional tax treatment and retirement income support via the age pension for those people whose SMSFs fail and have inadequate retirement incomes,” it said.
“Accordingly, it is important that the ASIC Guide be updated and the recommended threshold for SMSFs be increased in line with the Report findings. Consideration should also be given to introducing a mandatory threshold for SMSF accounts.”
It is simply inaccurate to make a blanket comment that SMSFs under $1m perform worse than funds over $1m, At SMSF Benchmarks we measure and compare the performance of SMSFs. Fees are only one factor in the performance of a fund, and yes funds under $350,000 are up against it. But this $1m figure which has been bandied around is possibly being driven by someone with a political motivation to encourage SMSFs to close and get the money into industry funds.
Idiots! This law firm knows nothing about super and why people set up an SMSF!!!
Wonder which of their clients are in Industry or Retail super, because there is no valid reason why a legal firm should have an issue of the size of a SMSF
While I agree that SMSF’s in general terms need to have quite decent balances before initiating, to set a ‘limit’ is flawed as it negates numerous other beneficial strategies that are currently available for appropriate situations.
I also just googled this mob. “Superannuation and insurance plaintiff lawyers’ i.e. they are the ambulance chasers that charge big $ for getting the insurance that the client could have done themselves for no fee in 90% of the cases.
Sounds like they are naive and have no real insight into the overall SMSF environment if they are making a submission based on that flawed report that misrepresented returns.
Lawyers should stick to the qualitative issues and leave quantitative to the numbers people. There is no doubt that the amount of money invested versus cost is one factor that should not be ignored. However it is not the only factor. There are other issues including future intentions and what the investment style is of the parties whose money is at stake. Not to mention the relative age of the members and potential use of ultimate retirement savings. There are plenty of SMSFs that maybe should not exist but there are also plenty who have changed over who are not happy with the unintended consequences.