Graeme Colley replaced Peter Burgess as technical director of the SMSF Professionals’ Association of Australia (SPAA) in April. Professional Planner asked him to review the state of play for the SMSF sector.
The SMSF sector is bubbling along nicely, or so the figures would suggest. The number of funds is poised to exceed half a million, the number of trustees is approaching 1 million and assets under management total about $474 billion – about one third of the total superannuation pool of savings.
On this evidence it seems many people want to manage their superannuation and for one overriding reason – they want to be actively involved in overseeing their retirement savings, both pre- and post-retirement. And this is exactly what SMSFs allow them to do: they give them the vehicle to control their fund investments by having direct access to the market, as well as having direct responsibility for its administration.
But to hear our critics, many SMSF trustees aren’t to be entrusted with this responsibility. They are seen as lacking the necessary investment skills and having little understanding of compliance or costs, ignoring the fact SMSF trustees have access to skilled professional advice and that the long-term performance of SMSFs is superior to other funds.
Critical response
Certainly, SPAA begs to differ with the critics. And if they did their homework, they would remember that the Cooper Review in its final 2010 report did so too. For those with short memories, here’s what the report stated:
The vast majority of submissions supported the view that the SMSF sector, with a few exceptions, generally works well. This view is shared by the panel. The review process has generally confirmed that the SMSF sector is largely a successful and well functioning part of (the) superannuation system.
The Panel suspects that the most significant aspect of its work in the SMSF sector is that it has not (my emphasis) recommended wide‑ranging changes — a minimum SMSF asset size or specific trustee educational requirements, being two examples. The panel’s SMSF recommendations are not dramatic and largely relate to compliance, audit, and advisor competency and like measures. These changes are aimed at ensuring that this growing sector can continue to prosper in an enhanced environment.
Put simply, what Cooper recognised was that SMSFs are well managed.
Since then there has been little evidence that the SMSF sector has dropped its guard; indeed, the evidence is to the contrary, as legislative and regulatory reform is demanding even higher standards of the sector.
Even the ASIC research undertaken recently was based only on 100 pieces of advice to low-balance SMSFs, as well as those advisers that are prolific spruikers of property and borrowing (something SPAA has explicitly warned about) or those that have had consumer complaints made against them. This was a very small subset of SMSF advice, only addressing the really risky end of advice to the SMSF industry.
It was certainly not typical of the industry, although SPAA welcomed the report as being a useful tool in determining what the regulator saw as risks to watch out for, and provide SMSF advisers with an example of what ASIC expected of them.
On any objective assessment of SMSFs, there is a dearth of evidence that SMSFs are being operated by people who don’t understand superannuation. [Colley was asked by Professional Planner whether the SMSF trend could be curtailed by Super Funds offering product look-alikes].This is clearly false as it is promoted by those who are often conflicted and see SMSFs as a threat to their survival without understanding and acting on the dynamic changes taking place in the superannuation industry.
SPAA has always acknowledged that SMSFs are not for everyone. But just like other types of superannuation funds they are a necessary part of the retirement savings cycle for many people. Just read Cooper.
Graeme Colley is technical director of the SMSF Professionals’ Association of Australia (SPAA)
