Smaller SMSFs underperfoming, says SuperConcepts
SMSFs with balances of less than $200,000 have larger expense ratios and cannot achieve adequate diversification, according to research conducted by SuperConcepts and the University of Adelaide.
The report When size matters: A closer look at SMSF performance – compiled by SuperConcepts and the University of Adelaide’s International Centre for Financial Services – examined how fund size affected performance, diversification and expense ratios.
The report used data from more than 20,000 SMSFs from 2008-09 to 2014-15.
SuperConcepts general manager of technical services and education Peter Burgess said the research revealed that the benefits of investment diversification start to kick when the balance of the fund reaches $200,000.
“Our research shows size matters, with large SMSFs performing better than small ones. Performance, diversification and expense ratios continue to improve as a fund increases in size,” Mr Burgess said.
University of Adelaide professor Ralf-Yves Zurbrugg said there is a “double whammy” for SMSFs with balances under $200,000.
“These funds not only have much larger expense ratios compared to larger funds, but they also lose out due to their inability to achieve adequate levels of investment diversification,” Professor Zurbrugg said.
According to the research, large funds “are more efficient in their operation in terms of the direct expenses involved in managing an SMSF”.
The research showed that when a fund reaches $550,000 under management, its expense ratio dips below 2 per cent, and diversification and performance is comparable to the largest funds.
This recent research follows guidance released by ASIC in mid-2015 outlining its view that an SMSF with a starting balance of $200,000 or less is unlikely to be in the client’s best interests.
It drew mixed reactions from the industry with Olivia Long, CEO of Xpress Super and SuperGuardian criticising ASIC for interfering with the parameters of which the SMSF sector operates.