Speaking to SMSF Adviser, Wealth Within chief analyst Dale Gillham said while there tends to be plenty of information available on meeting the compliance requirements of running an SMSF, trustees’ investment knowledge “isn’t anywhere as high as it should be”.
“Whilst I don’t necessarily think education should be mandatory, I think there needs to be checks and balances undertaken by accountants and advisers that ensure a trustee is qualified to run an SMSF,” said Mr Gillham.
“Every SMSF has an accountant or an auditor so perhaps they should be the ones to suggest the trustee receive training if they feel the trustee doesn’t have the skills they need.”
Mr Gillham said that in more than 20 years working as an analyst, he has seen a vast majority of investors consistently make mistakes due to a lack of knowledge, which inevitably impacts upon their returns.
“This is currently happening in the super fund world; people are setting up portfolios and doing things that shouldn’t [be done] simply because they have a lack of knowledge,” he said.
“They tend of be like ships without rudders doing whatever others tell them to do rather than making their own informed decisions.”
This lack of knowledge, he said, is also leaving trustees exposed to some of the more unscrupulous people who target SMSFs for their own benefit.
“The average Australian doesn’t do a lot of research. They don’t read PDSs, and only look at the return rather than the risk on that return, they don’t research different products or providers, and they are at that much greater risk because of it,” he said.
“Getting people to understand what they’re investing in has been a big challenge in the financial services industry – people put their money in places they don’t understand all the time.”
On the whole, SMSFs perform as well as professionally managed funds. APRA funds tend do better in rising markets, SMSFs do better in falling markets. SMSF asset allocation tends to be conservative with a bias to cash and Australian shares because SMSF members, more likely to be in retirement or heading towards it, need a reliable income stream. Sure, we can all make investment mistakes, but SMSF trustees mostly get it right most of the time. With the help of their accountants, they also get compliance right – only 2% of SMSFs have qualified audits. There’s no shortage of professional advice available to SMSF owners and many choose to take it. Setting up an SMSF is an option that should be open to all working Australians and we would not support ‘vetting’ of trustees. Information about how to set up and run an SMSF is readily available – the ATO website is a good place to start.
Duncan Fairweather
Executive Director
SMSF Owners’ Alliance
Trustees investing in their SMSF’s or doing it outside super are taking the same investment risks with their money. One cannot legislate against stupidity. Prudent trustees or investors usually get similar advice so why does it require legislated trustee education when some financial planners show no greater benefit from their education. Closing out their accountants as a SMSF source of financial advice is a retrograde step by the regulators in my opinion.
What a load of codswallop!! The fact is that the trustees of most SMSFs are totally aware of their responsibilities and, unlike their public counterparts, they are playing with their own money and take it very seriously. And this is the most important fact: when in doubt they will ask for help!!!
I am a plumber by trade – a very good one. I have my own SMSF, I do quite well – average return for the last 5 years (after income tax – included a deferred tax liability) has been in excess of 20% (compound return). I do all of this without paying fees to an asset allocator. I comply with the superannuation rules, so why do I need additional qualifications?
And how many financial advisors just do what their research house tells them? I think it’s a rare advisor who knows everything about every product they invest client money in. A lot of SMSF trustees see more value in paying for subscriptions from several different research houses. Aggregated, the cost is still going to be less than an advisors fees.
Pure supposition on your part Mr Gillham, not supported by the ATO stats, or Govt inquiries. As the Cooper review found, “the SMSF sector is well run”. I don’t doubt that there are smsfs trustees who may struggle, but after 30 years in this industry in my opinion they are in the minority. The SMSF trustees i meet are typically intelligent people who know what they want, and want to consume investment, tax, estate planning and compliance advice at their pace. You would see SMSF trustees treated as idiots, so you can swallow them whole and tell them what to do, curtailing the freedom of choice that led them to SMSF in the first place. Perhaps that has something to do with the way your industry charges, with exorbidant “looking after” fees. The real statistics show that FP’s have very little penetration in the SMSF sector, so the motivation for your claims here becomes apparent. Perhaps we can leave the “strays” to you and the financial planning industry to round up….and fleece.
Mr Gilham is making some very broad generalisations here. As an accountant with many clients having SMSFs I can say the majority are very well informed on their duties as trustees and with the assistance of the accountants and auditors are fully compliant. As far as making investment mistakes “…which inevitably impacts on their returns” I would say at a guess its a lots less in quantity and value than the mistakes made by the big super players and their highly paid investment managers.
I read an industry survey a year ago that stated more than 50% of DIY funds faired better during and after the GFC than all the major funds.
A lot of SMSF trustees would suggest that professional money managers aren’t much better….Paying themselves millions of dollars a year in salaries and bonuses to get benchmark-like returns, and staying fully invested while the market shed 56% in 2008/09.
Retail investors have zero faith in fund managers that stay fully invested while the market tanks. I know market-timing is fraught with danger, but riding out a 56% market correction is something that retail investors don’t believe in – pure and simple.
Since when do auditors become advisors?
The ability to give investment advices has been taken from accountants so that leaves the investment advisory industry tasked with the education role. I agree that education is needed I am struggling to see trustees engaging & paying for that education. Mind shift needed.