In its response to the Financial System Inquiry’s interim report, Westpac said suitability remains the most important policy consideration in relation to SMSFs.
“In light of the complexity, ongoing administration and unique risks, Westpac encourages the Inquiry to consider the introduction of appropriate additional regulatory requirements before an SMSF is able to be established,” the submission stated.
Westpac said the bank supports the requirement for a clearer test to be satisfied before the establishment of an SMSF can be recommended.
The test would require an adviser or accountant to be satisfied the benefits from the establishment of the SMSF clearly outweighed the risk and complexity relative to an APRA-regulated structure, Westpac said.
“Given the unique structure and risks attached to SMSFs, consideration should be given to higher qualification and accreditation requirements for advisers in this area.”
Westpac also said the current level of oversight and analysis of the systemic implications of the SMSF sector is insufficient, given the sector’s size and continuing growth rate.
“This poses important issues for the government and SMSF members, including risk of shortfalls in retirement savings due to poor management and/or mismanagement; calls to compensate SMSF members in the event of a failure; and poor understanding of the economic and financial system implications of the sector,” Westpac stated.
Westpac said this lack of oversight is “compounded” by the typically poor quality and depth of official data in relation to SMSFs.
The bank also acknowledged that there are systemic benefits to a large unleveraged superannuation savings pool, which can act as a stabiliser in times of economic stress.
However, Westpac stated it believes the current take-up of borrowing by SMSF’s is a “rational” response to the current policy and tax settings.
“Any change to the requirements surrounding leverage, like any others in superannuation, should operate on a prospective basis – consistent with the interim report’s policy option,” Westpac stated.
“Should the Inquiry decide not to remove direct leverage, we encourage the Inquiry to instead consider how appropriate caps – at an SMSF level – can be introduced to ensure leverage does not become a systemic risk.”
“The test would require an adviser or accountant to be satisfied the benefits from the establishment of the SMSF clearly outweighed the risk and complexity relative to an APRA-regulated structure,”
But surely advisors already implicitly apply this test? We wouldn’t be acting in the best interests of our client if we recommended they establish an SMSF without first weighing up the pro’s and con’s of SMSF vs an APRA regulated fund.
I agree that higher levels of knowledge are required to advise in this area, as it’s one where ‘not knowing what you don’t know’ can be lethal.
Why is it that when a bank comments about SMSF they are portrayed as a threatened institution defending their (retail fund) turf in these comments? I wonder if this is really the case? Surely banks view the SMSF space as a huge business opportunity? Oz banking is a v. mature market and SMSF is an area which has scope for, and rewards, innovation. What’s not to like about that?
WESTPAC…Read the comments below and weep. You are the only ones stupid enough to believe your self serving rhetoric.
Westpacs vested interest and self-serving comments are a joke. Surely no legislator would take notice of such an obvious attempt to thwart consumers choice?
The Westpac claims are not supported by the facts. The huge majority of SMSF’s are well run and managed, much to the chagrin of the ‘big boys’ in town.
The Westpacs of the world need to accept the fact that the growth of SMSF’s are as a direct result of their greed and huge fees. Also SMSF provide a better rate of return in most cases. Certainly that is my experience over 37 years as a professional accountant.
I was a skeptic when SMSF borrowings was introduced, but to be honest I have not seen this piece of legislation being systematically abused. In fact, the only three occasions where I have seen compliance borrowing issues is when a Big 4 bank has set up the lending arrangement, and the bank manager has not understood the legislation/process therefore causing compliance issues.
Should we really take anything a Big 4 bank says about superannuation serioulsy,particularly when it comes to SMSF activity.This is an area that they have little working knowledge of and see as competitive to their vertically integrated business practices.Perhaps when the large institutions clean up their act re financial advice they may get some credibility in the market place
Does any other institution have a self serving but otherwise counterproductive suggestion.
Yes, SMSF law has complexities but that’s why people have advisers. Just like a small business operating through a trust or company has advisers. No-one calls for extra regulation here. That’s because their own self interest isn’t affected.
What a load of utter garbage!! Talk about a vested interest. BT is probably reeling from the loss of funds and no wonder. The way they charge and the lousy return it’s no wonder people are leaving. These people have unmitigated gall to make these comments. They are dangerous and must be stopped.
Where is their statement re conflict of interest? Or do they consider it so obvious as to render their comments worthless? And if they are so worried about systemic risks due to leverage, I’m sure they are making changes to their own lending products targeting this area, so as to make them uncompetitive in the current regulatory environment! Give me a break. DISCLOSURE – I am a professional adviser in the SMSF area