Six Park chief executive Patrick Garrett says while some people in the industry highlight the fact that the ATO’s SMSF statistics show a correlation between low balances and lower performance, it is possible to create a well-balanced portfolio that achieves good returns with less than $200,000.
Mr Garrett said it’s not the low balance that results in low returns, but poor diversification, which stems from a number of factors.
“You can get diversified very easily using ETFs, and if you rebalance and do these other things and your costs are low, performance is going to be pretty good,” he said.
Some SMSFs that have not properly considered their asset allocation are taking on too much risk or missing out on returns, Mr Garrett said.
A white paper report by Six Pack revealed that many SMSF investors are paying excessive fees for investment advice, that are not only higher than they need to be but are also impacting their returns.
“Given these factors, it’s not surprising that we hear and read that many SMSFs, particularly those with smaller balances tend to have poor investment performance. But it doesn’t have to be the case,” Mr Garrett said.
“Changes in technology mean there is now no reason why SMSFs, even those with small account balances, cannot build portfolios which are globally diversified and tailored to their risk profile, objectives or time horizon.”
Mr Garrett said there is also no reason why portfolios for SMSFs should be expensive to implement or maintain.
Hi, thank you for the candid feedback. Our white paper message is simple: For anyone who has decided they want an SMSF (large or small), technology and automation have lowered costs for setup/admin/investment management (whether that be via Six Park, a competitor, ETF’s, self directed non-ETF, or other). Press coverage suggests SMSFs not viable at $200k, $550k, or as high as $2mm. We think that’s wrong. “SMSFs with balances below $200,000 are generally not properly diversified, resulting in sub-standard performance for smaller DIY funds” – Financial Review, 14 March 2017. That’s a true fact, but do you believe that’s because SMSFs below $200,000 CAN’T get diversified, or don’t know how, or don’t have access to the good investment management services? “DIY Funds With Less Than $2 Million Not Viable, Say Industry Funds” – The Age, 22 Feb 2017. Do you believe that this headline is an accurate portrayal to a 40yo who has decided to pursue an SMSF for the benefits it might provide him/her? Read that gain: $2mm minimum. SuperConcepts/Univ of Adelaide report suggests that to achieve 2% MER, SMSF needs $550k. Do the math, that suggests baseline SMSF running costs of $11k. Do you think that is true in today’s market? In our view, incumbents rely on outdated information to keep people from understanding what their viable options are (e.g., access). The white paper is not a Six Park plug, it is about education, clarifying accessibility, and challenging outdated assumptions in the market. Last point: there are spruikers out there getting people into SMSFs for the wrong reasons. That’s a major problem that should be addressed. Our white paper is about informing, empowering and demystifying the current SMSF landscape, not about sprucing our or any other product. Pat Garrett, CEO, Six Park
Diversification – Patrick says invest in his ETF model and you will be better off.
I was wondering if someone invests all of their funds into ETF’s are they increasing their risks by being in one type of product only? Or because you are in Patrick’s model that he is trying to sell you, it doesn’t matter as he has all the diversification you need.
isn’t the problem with minimum balances centred on the fact that audit and admin fees eat into returns too much? and on the subject of diversification and investment returns there appears to be some confusion here. Diversification is pursed to reduce overall portfolio risk. Given that risk and return are positively correlated, diversification yields a lower returning, but ‘safer’ portfolio.
Pat, what you have ignored is for small balances there are plenty of options available to investors that eliminate the need for the administrative burden and costs of an SMSF, and achieve just as much diversification as your ETF model portfollios. With MySuper pretty much all industry and retail funds offer low cost index style diversified portfolios, many at just a few basis points cost. Sorry, but the industry should be doing a better job at helping people choose the right vehicles rather than create a straw man argument to support their own agenda. It would be a welcome move if the government mandated a certain asset pool requirement to begin a SMSF and help protect people from themselves as well as the rent seekers seeking a slice of their pie.