Speaking to SMSF Adviser, Minter Ellison partner Maged Girgis said the SMSF sector is now too large to ignore.
When an investor sets up their own SMSF, in practical terms they are outside the regulatory environment most superannuation funds are subject to, he said.
“That’s fine when it’s small numbers, but once you now get to the stage where 30 per cent of the superannuation monies are invested in SMSFs, you now have a systemic problem,” Mr Girgis said.
One risk with SMSFs is that they won’t achieve their objective of providing a retirement income for their members, he said.
While all funds, including APRA-regulated funds pose this risk, with SMSFs “you have no idea” whether the funds are being invested wisely, he added.
“If they don’t meet the objectives, what’s the result? They go back on the public purse,” Mr Girgis said.
“The very genesis of a superannuation system is to take pressure off the old age pension requirements of the commonwealth government,” he added.
Mr Girgis said the government should consider potential solutions such as only allowing certain types of investor to set up SMSFs, such as “sophisticated” investors or those with a certain amount of assets.
He also said the government’s inquiry should look at options such as a licensing regime for SMSFs, given that the government is extending concessions to SMSFs with a view to “relieve the public purse”.
When asked if the SMSF sector should come under APRA’s regulation, Mr Girgis said APRA is unlikely to have the appropriate resources.
“In fact it’s difficult to see how any regulator can have the resources necessary to regulate [SMSFs], because of the sheer numbers.”
Mr Girgis also noted the government should look into the types of asset that SMSFs are permitted to invest in, but which “relatively large” funds are not, such as property and exotic investments.
“Maybe the government should look at whether they are really appropriate for retirement incomes,” he said.
As a lawyer and an economist with a PhD from Harvard, I find Mr Girgis’ comments remarkable. Since when did lawyers become advocates for taking away people’s rights to manage their own money? As for financial stability, the stock market and investment markets generally are more stable with many thousands of investors taking a plurality of views than if dominated by a few very large fund managers.
Isn’t it refreshing to have someone with no obvious understanding of economics, risk and the financial system having their say. Someone with a clue obviously missed the designated time at the enquiry and
instead of an early lunch they grabbed this guy who was loitering out the front waiting for a car accident! Can’t seem to imagine a more plausible explanation for this gentleman’s inclusion give he has no obvious knowledge of the area in which he was speaking.
I hope Mr Girgis reads the feedback from this column and slinks away with his tail between his legs.
Also shows the echo chamber these people live in. You can just see him espousing these views around the lunch room at Minter Ellison and all the enthusiastic nodding heads. He has clearly suffered no rigorous scrutiny of his view point ever.
And of course this is utterly unbiased comment, coming from someone in the financial services industry. This is dangerous for SMSF; they were permitted to enable people to make their own decisions without having to pay exorbitant fees to snouts in the trough. Leave SMSF alone!
Poor Mr Girgis! If you stick your nose in then you have to know your facts. Mr Girgis, you are up again some very knowledgeable people on this website: some of whom are leaders in the superannuation and especially the SMSF area. You would do well to consult some of them before putting you ill advised thoughts on paper.
For goodness sake Mr Girgis how can you not feel stupid… you are a FOOL entering a room full of thinkers….JUST BUT OUT.
Wow – just wow. Does Mr Girgis even understand what systemic risk is? How on earth is have 500,000 separate funds making separate discrete investment decisions increasing systemic risk versus the huge but much less in number index hugging APRA funds. Which type of super fund slavishly follows the dictates of the research houses and which doesn’t.
Homework for Mr Girgis – understand the raw basic fundamentals of diversity having 500,000 funds making investment decisions versus a few hundred big unwieldy ones.
You’ve also got to grudgingly admire the big end of towns chutzpah about saying SMSFs might lose their members funds. How bad does the big end of town’s performance need to be before they have some shame and hold their tongue? Boys we haven’t forgotten the GFC, the negative returns over ten years plus. There’s an air of “let them eat cake” about it really.
“When an investor sets up their own SMSF, in practical terms they are outside the regulatory environment most superannuation funds are subject to, he said”
AS a SMSF trustee I am told what I can invest in,when & how I can borrow, I MUST have an investment strategy, both my investments & that strategy are audited annually.
If he thinks I am outside the dictates of the ATO then I suggest he keeps his profesional opinions to himself because the last thing SMSf trustees need is even more costs heaped upon us in the name of supervision.
The recent commentary around SMSFs posing a systemic risk due to the size of the sector is totally misguided. By their very nature, each SMSF is separately managed for a small number of individuals. So, for example, the failure of a few SMSFs for whatever reason only affects a small number of individuals. Consequently, the systemic risk in the large fund sector is much higher (one fund failing affects tens of thousands of people) and that is why that sector has a prudential regulation framework in place. The comments in the article about the types of investments limited to SMSFs are also off the mark -property is a significant asset class for a number of large funds and I am also aware (anecdotally at least) of one or more large funds having substantial art collections. It should also be noted that the ATO and Government are happy with the shape of the SMSF sector and the Federal Treasury in its submission to the FSI also basically suggested the sector be left alone.
What a lot of rubbish – have a look at the SMSF sector and the Union / Industry funds over the last 10 to 20 years and see who has preformed best
Oh I am sorry only Mr Girgis sitting in his glass tower knows best – as for the sophisticated investors this is also rubbish as I have seen many so called sophisticated investors lose substantial amounts of money
With respect these points are easily debunked.
In equal measure, no one knows where large super funds invest their member’s money (they refuse to publish this information) or how often portfolios are being turned over.
Maybe Mr Girgis could encourage some of his large super fund clients to publish this information on a daily basis.
All super funds have the same investment rules. That is large funds can invest in “property and exotic investment” and I’m sure some have done this. But who knows because of the lack of transparency.
I’m amazed by the continual lack of respect “professionals” display to ordinary investors.