SMSF critics should look to the facts, not their biases

In the eyes of their critics it seems SMSF trustees can never get it right on the investment front, says Graeme Colley, Director, Technical and Professional Standards, of the SMSF Professionals’ Association of Australia (SPAA).

“In recent days we have been told trustees are overweight in Australian equities, especially the fully franked blue chips such as the banks and Telstra.

“It wasn’t so long ago these same critics were pointing their fingers at SMSFs for holding too much in cash and fixed deposits. Then SMSFs investing in property gets a hiding. Why can’t they ever make up their minds if there is a problem with SMSFs?”

Colley says these SMSF critics seem to ignore the fact that some APRA-based funds allow members to put all their money in the top 300 ASX stocks and some let you put it all in one asset class such as overseas shares.

“What’s worse, an APRA-based fund that lets you put all your money in one asset class or an SMSF that may be overweight in one asset class? I can’t speak for APRA-based funds, but in the case of SMSFs it might just be the case that an overweight allocation best suits the fund’s risk profile.

“If SMSFs are criticised for being too exposed to market risk then, guess what, the APRA funds that are in the same boat will fall just as heavily and their members won’t even know what’s happened as they are not engaged, unlike the SMSFs where members have high levels of engagement.”

Colley says these critics typically enter the debate when there is change in market sentiment and use this factor to assert that SMSFs have the wrong asset allocation.  The difference is barely noticeable compared with what APRA funds allow their members to do without proper advice and assessment of risk profiles.

“What this ignores is that the APRA figures conclusively show that SMSFs, on average, outperform their APRA-regulated cousins when markets are struggling and match their performance when markets are rising.

“This is shown in the latest performance information comparing APRA and SMSF funds that show there is a lower level of risk with SMSFs (see graph).

“They also overlook the data published earlier this year by Rice Warner that showed over the eight-year period from 2005 to 2012, the SMSF sector outperformed the rest of the superannuation industry in six of those eight years. It was hardly a sea of investment tranquillity – the tail-end of a boom, the GFC, and slow economic recovery.

“With this armour to support the significance of SMSFs and the role they play in the superannuation industry, we now wait for the critics to fall on their swords.”