In its submission to the Financial System Inquiry (FSI), ISA stated published data indicates that average running costs of SMSFs are significantly higher than the costs for not-for-profit APRA-regulated funds, with the exception of larger SMSFs.
“The most recent data show that 30 per cent of SMSFs have less than $100,000 in funds under management and have costs of between three per cent and seven per cent per year,” ISA stated.
“These expense levels represent a significant leakage from the superannuation system, resulting in lower retirement accumulations for those with SMSFs who are least able to afford it.”
“SMSF trustees and account holders with assets in this range are likely to qualify for full or part age pensions, so reduced accumulations in this range will also result in increased public pension outlays in coming years.”
Data also indicates most SMSFs are poorly diversified, ISA stated, with approximately two thirds having the “overwhelming” majority of assets in either high-risk assets or low-risk assets.
“An excess of low-risk assets will reduce long-term expected returns. An excess of high-risk assets will lead to a very high level of volatility,” ISA stated.
The SMSF sector remains in the domain of self-regulation, ISA said, governed by the ideology that members will have a vested interest in optimal decision making.
“This is not too far from the market self-regulation principles that since the GFC have been largely abandoned as the preferred paradigm for regulation,” ISA stated.
“As the SMSF sector grows, the impact of sub-optimal asset allocation and regulation will become increasingly systemically important. The paradigm for SMSF regulation merits a review in this context.”
The future of the SMSF structure will likely be as a “distribution channel for the major banks’ wealth arms”, ISA also said.
“This will remove the final reason that the ATO had regulatory oversight of SMSFs,” ISA stated. “As the SMSF provider market concentrates around the major banks, the basis for APRA regulation increases.”
What a lOad of uninformed self serving CRAP
The most self-interested, self-serving thing I have seen for a long time. The logical corollary is that people should NEVER be allowed to manage their own money; they should be looked after by experts and governments from cradle to grave, by people who know better, that’s right, by the sort of people who gave us the GFC. But isn’t that what we once described as National Socialism?
More self interested blather. Note that they are commenting on only the smaller funds with less than $100,000 which are either in commencement mode and do not trust the larger funds or in wind-down mode and again, do not trust the larger funds.
Regarding diversity, most SMSF, because they are making decisions for themselves, do not worry about that because they do not trust what the “big boys” do and tell them they should be doing. They make there own decisions and the vast majority have done pretty well out of it.
Actually there is a further comment I’d like to make . . . I started my SMSF about over 14 years ago because my Industry Super Funds were just not going anywhere and was increasingly likely I would have to rely heavily on the aged pension if I did not do something different. Now I am retired and live very comfortably without needing the aged pension. In fact, I’m well past the point where I might have even qualified for any of it. All of this was accomplished by ensuring that asset purchases were made at the right price. That is the most important thing in successful investing as opposed to just grabbing a few bonds here and a bit of property there just so you can say you have a bit of everything. So, Katarina, I say to you that one cap size does not fit all heads.
After reading the nonsense in this article, it’s not hard to see why SMSFs are so popular. Need I say more!
Typical rubbish coming from the managed funds people. They are losing fund, not to mention commissions. so they fight back with these sorts of ill informed comments. I have done the financials for over 100 SMSFs for the 2013 year and I would bet that most have outperformed the public funds. Why? because they are playing with their own money, they have sound investments, they don’t gamble and they don’t pay themselves (can’t anyway by law)exorbitant fees!!
If I was an industry fund member reading this I’d be tempted to pull my money out on the assumption that this analysis sets the industry fund standard. What a load of utter rubbish.
If it’s only the small funds that have high costs then it can’t be too ‘significant’.
Unfortunately, whilst they could have put a legitimate case for why some small SMSF members might be better sticking with external super, they’ve chosen to go forward with this codswallop.
The problem does NOT lie with smsf’s it lies with fools and charlatans allowing small account smsf’s to be ( improperly) implemented in the first place.
Frankly I have had enough of the ISN.
When will they realise that not all Australians will meekly follow their lead and do want they want ?
I have an SMSF of my own. Why? 1 because I don’t have to put up with someone else controlling what I do ( within reason) this includes but is not limited to being told what is and isn’t good for me .
2. I have the ability to estae plan more effectivly .
3. I have the ability to pick and choose my investment mix and asset types ( within the rules) and in my case invest in ” business real property” , creating a double advantage to me in allowing me to pay rent to my super fund, as well as contribute as an employer
It would be nice if ISA fixed some issues within its own membership. EG settling claims within 15 months of date death of a member IE my wife.
Interestingly on the subject of asset allocations, I think the lens should also focus on Industry funds for once and their opaque methods.
Recently I personally reviewed (yes I’m an adviser) the asset allocation of “balanced funds” in the industry. I noticed that there’s absolutely nothing “balanced” about them. Some of them had over 76% exposure to equities. I would have called this “growth”. Now, as an uneducated investor without a financial adviser, what are the chances you would know that “balanced” is skewed so heavily towards volatile assets? Isn’t it about time that “Balanced” meant what it was supposed to mean?
MYOB ISA
Spend some more of members money on football teams and advertising.
Buy some more illiquid assets and value them poorly.
ISN really has no place in this space, however were they to make a genuine contribution it could include something along the lines of moderating gearing. SMSF investment into residential property with 80% gearing and 2.5% income is a strategy dependent on high contribution levels being maintained. Not always possible if the members have a change of fortunes.
This type of outright misrepresentation is why ISN lacks credibility. Not to mention exactly how spending money and resources on lobbying concerning matters that specifically excludes their members fails to conform in anyway with the sole purpose test.
The “costs” of the fund versus its income vary as much as the type of investment pursued does. Many small balance smsf’s have the likes of an investment property in them and a strategy of optimum contribution for two or more people over 5 years. In this way $75k becomes $300k and the investment property is paid off. Frequently this is their business premises and provides for a genuine rental income stream with moderate capital growth over the longer term. It also means they can invest more widely over the longer term once any debt related to the property purchase is eliminated.
I didn’t know that a balanced portfolio was the right investment mix for everyone.I always thought some people’s circumstances were better off in low risk assets, while other’s situation meant a higher risk portfolio was better.
That’s why industry funds have these different investment options.
Maybe the ISA’s goal was part of a campaign against SMSFs rather than sensible investment commentary.
I picked up that the ISA can see larger SMSFs can have a fee saving compared to being in an undustry fund. I wonder what the ISA is doing to encourage their members with larger balances to set up a SMSF and reduce the leakage in fees from the super system?
Maybe there’s more than just fees to consider when looking at which super fund is best for people? Again, what’s the purpose of the ISA press release – to inform or a campaign against SMSFs.
ISA Misses the point. SMSF trustees chose to have their own money in their own fund because they dont trust the likes of Industry Super Funds. These self serving findings overlook the fact that SMSF trustees understand that the ‘cost of administration’ is only one part of the reason for chosing a fund they can themselves control. As for their data – its nothing short of extraordinary – to suggest that SMSFs will contribute to an underfunded retiree sector in the future is in fact the opposite of what it’s going to do. Through this article ISA have further enforced why intelligent people who are capable of looking after their own money should get it out of Industry funds and into SMSFs as soon as possible!