The Productivity Commission this week released its draft report into the efficiency and competitiveness of the superannuation sector which stated that the quality of financial advice provided to some superannuation members, including those with SMSFs “is questionable”.
While the draft report acknowledged that SMSFs are mostly satisfied when they actively collaborate with a trusted adviser, based on SMSF Association and CommBank research, it stated that “a range of evidence raises questions about the quality of the advice provided to SMSFs”.
The report referred to ASIC’s testimony at the at the financial services royal commission indicating that nine times out of 10, advisers failed to take into account the best interests of their clients when giving advice about setting up self-managed super funds.
“Further, ASIC stated that pending research concluded that in 10 per cent of the SMSF client files reviewed, the client ‘risked being significantly worse off’ and a further 19 per cent of clients were at an increased risk of suffering financial detriment,” it stated.
The report stated that while the process of establishing and growing an SMSF builds trust between the adviser and SMSF members, “evidence suggests that clients who form favourable views of advisers tend to maintain those views even when the quality of the advice does not justify their decision”.
The draft report also referred to a paper by the Centre for International Finance and Regulation which found that current and former SMSF members were significantly more likely to trust their advisers and hold them in high esteem compared with non SMSF members.
“The latter group were more sceptical, rating advisers as self-interested and influenced by commissions. Other evidence shows there has been a sharp increase, albeit from a small base, in complaints to the FOS about financial planning advice for SMSF owners,” the report stated.
The paper also suggested that higher levels of engagement do not necessarily equate with high levels of financial literacy.
“One survey of SMSF investors found that they had no better financial literacy than other superannuation members, but that 85 per cent rated their skill as at or above average,” said the report.
“The Commission’s member survey found that SMSF investors had lower average financial literacy than other choice members because a smaller share got all the answers right.”
The paper also raised concerns about “an increase in reported costs for SMSFs over recent years”,
While it noted that the costs for SMSFs with over $1 million in assets were broadly comparable with APRA regulated funds as a percentage of member account balances, may smaller SMSFs, it said have “delivered materially lower returns on average than larger SMSFs”.
“The difference between returns from the smallest SMSFs with less than $50,000, and the largest with over $2 million, exceeds 10 percentage points a year,” said the report.
“These high costs are the primary cause of the poor net returns experienced by small SMSFs on average. However, the number of new SMSFs with very low balances under $100,000 has fallen from 35 per cent of new establishments in 2010 to 23 per cent in 2016.”
I’d rather over-pay on fees, while my balance is still low at first, than hand my money to people who simply cannot be trusted. This weekend’s Australian exposed that “on average, retired investors in retail super funds are seeing their returns rise by less than half the amount expected” due to super funds failing to pass on fully the tax exemptions on retired members super earnings.
Why should I pay specialists to mis-manage my money when I can do a perfectly good job of mis-managing it myself?
Agree, and the ISA funds are just as bad if not worse with undisclosed kick backs to Unions and nonsensical returns and opaque reports (who’d trust a union thug running a fund, seriously?). Better in my own hands, actively managed.
The quality of legislationI ought to be questioned first
and spelling
As someone who has specialised in research methodology for my Masters Degree I can, with almost 99% certainty, state that these findings aren’t worth the paper they are written on. Doing proper research on this subject is fiendishly difficult (just getting a representative sample of SMSF trustees will be a very hard task, let alone asking the right questions). Then there is ASIC’s review of client files: how was the sampling done? What were the criteria on which to judge the appropriateness of the advice? Given ASIC staff’s complete cluelessness on most matters regarding financial planning ‘in the field’, I have very little confidence in their results.
The bigger picture from the PC report is around the default fund provisions and the suggestion that a panel selects these and, here’s the best bit, Industry funds will have to have a greater percentage of independent Directors to qualify for vetting into the list.
(Legislating minimum balances for SMSFs is a bridge too far.)
I’m guessing the title “Adviser” covers a range of people from Licensed Financial advisers through to Accountants , with or with out a licence to do the advice work
Where was ASIC and the ATO when the SMSF spruikers started to pop up everywhere after the GFC? They have been making a killing off the back of retirees and everybody in the industry knows it.
Most are accountants, ex-insurance salesman, real-estate agents and other with similar qualifications off a cereal box.
I still question the analysis on SMSF returns. The ATO data includes members insurance premiums in the return calculations where the APRS returns dont. Until the data clearly segregates these then no proper conclusions can be drawn
why does it only refer to Financial Advisers setting up SMSF, I know many accountants who set up smsfs for my clients and go off and do the rollover without an SOA…..
Let me guess, the idiots behind the productivity commission have no formal qualifications and feel free to comment based mainly on, what? ASIC’s slanted biased report (written after they purposely targeted dodgy SMSF property operators) and some uninformed ‘survey’?
I conducted a survey and 100% of respondents stated unequivocally that ASIC and the Productivity Commission were clueless, which is reflected in the report I wrote, so it must be true and news worthy, right?
If the prior release from the PC talking about ‘zombie insurances; by Ms Chester is any example, then our system is failing us in so many ways, including appointing inept sensationalist media attention seekers in these roles. Guessing she’s aiming to climb the bureaucratic corporate ladder in the Gov service, or has been tapped on the shoulder by old mate biased Kell to put pressure in this sector to help his mates in the ISA.
They should legislate that a SMSF cannot be established for less than $200k. That will slow some of the SMSF floggers out there and small balances might actually grow!
or even $250K and index that amount each year
Agree it’s generally the start balance that makes it reasonable but of course, there are always other broader issues or specific strategies that negate this overly simplistic approach and law you propose.