Last month, the University of Adelaide and SMSF Association released a research report analysing SMSF performance based on data from 318,000 SMSFs to identify a minimum amount of capital required for an SMSF to achieve comparable investment returns with much larger funds.
The research found that the investment performance between SMSFs and APRA-regulated funds was similar for SMSFs with balances between $200,000 and $500,000 and that $200,000 may be an appropriate threshold for establishing an SMSF.
This challenged regulatory guidance that was previously released by ASIC in Information Sheet 206, which suggests that SMSFs with balances below $500,000 have lower returns after expenses and tax than funds regulated by APRA-regulated funds.
INFO 206 also warns advisers that it is likely to scrutinise advice to establish an SMSF more closely where the starting balance of an SMSF is below $500,000.
SMSF Association chief executive John Maroney said the University of Adelaide research indicates that ASIC’s existing emphasis on minimum SMSF balances of $500,000 is excessively conservative and can be recalibrated to $200,000 and was hopeful the regulator might revisit the guidance.
Speaking to SMSF Adviser, ASIC advised that it was currently in the process of reviewing the research report.
“We are reviewing this comprehensive research piece and will consider its implications towards our guidance,” the corporate regulator stated.
Mr Maroney said the association feels there is a strong basis for ASIC to re-examine the guidance given that it is based on flawed analysis undertaken by the Productivity Commission.
He noted that there are difficulties in comparing ATO data on SMSF returns, which has traditionally used a return-on-assets approach, with the returns of APRA-regulated funds that use a rate-of-return approach, which the Productivity Commission failed to account for in its analysis.
“These things don’t happen overnight so it might be a lengthy process of getting ASIC to review this research in combination with the Rice Warner research that was previously done,” he said.
“We’re certainly hopeful that over time they will revisit that guidance and hopefully end up with a significantly lower number than $500,000.”
Mr Maroney said that based on the University of Adelaide research and the Rice Warner research previously done on SMSF costs, there’s a strong case that $200,000 may be an appropriate threshold if there’s going to be one.
“In the end SMSFs are not for everyone, it’s all about it being appropriate and in the best interests of individuals and taking on the legal and other responsibilities but we believe the guidance does need to be revisited,” he stated.
As if ASIC has the requisite expertise to analyse the report! Correct me if I am wrong – is this not the organization that undertook its own research on the cost of running a fund, and concluded that the right number was around $14,000pa?