ASIC’s SMSF scare tactics ruffles feathers

An ASIC fact sheet warning of the risks of small-balance SMSFs has been criticised for being unbalanced and based on flawed data.

“We certainly are disappointed with the tone,” says SMSF Association CEO John Maroney. “It casts SMSFs in a poor light and we think it lacks balance.”

The fact sheets will be sent to all new SMSF members in November as part of a trial, and made available to advisers. Its release came with a warning from the regulator of the potential downsides to SMSFs and eight ‘red flag’ situations that make it “extremely unlikely for an investor to gain any advantage”, including a low balance as well as a lack of engagement, experience or expertise.

Several points in the fact sheet have been questioned, in particular an assertion – based on data from researcher Investment Trends – that it takes over 100 hours per year to run an SMSF.

“With data feeds and email making collation and exchange of information so easy these days I think this figure is at least 40-60% over estimated,” says Liam Shorte, director at Verante Financial Planning.

Some older clients still spend time collating dividend statements, Shorte says, but this is out of habit and not necessity. “We already provide most of that data in annual merged reports,” he adds.

According to John Maroney, SMSF Association CEO, if consumers are spending that much time on their fund it’s a probably a good thing.

“I don’t consider 100 hours per year or two hours per week to be a detriment,” he says. “It’s getting people involved and keeping them engaged.”

Maroney also questions ASIC’s assertion that the average cost of running an SMSF is $13,900 per year. The figure includes set-up and wind-up fees that are one-off costs as well as “professional investment fees”, which are not explained.

“We think $13,900 is not a typical figure,” Maroney says. We think around $5,000 would be more accurate.”

Maroney also notes that SMSF software provider Class, in its submission to the Productivity Commission for its 2018 superannuation report, indicated the running cost was roughly half the $13,900 figure quoted.

Martin Heffron, executive director at Heffron SMSF Solutions, says he has “no idea” where ASIC got the figure from. “It’s hard to comment without knowing,” he adds.

Shock and awe

The premise of ASIC’s campaign – to make investors aware of the potential downside in setting up an SMSF – is not the issue, Shorte reckons, but the methods used to validate their concerns.

“I agree with ASIC’s efforts but I am concerned about where they have calculated some of the figures and their attempt to use shock and awe,” Shorte explains.

These tactics, Heffron believes, will only serve to undermine the regulator’s integrity. “It’s not a good look for them,” he says, adding that with this note the regulator itself is bordering on giving people advice without knowing their full situation.

The fact sheet’s other main assertion – that balances under $500,000 “have lower returns after expenses and tax” – was raised in the Productivity Commission’s December 2018 report into Superannuation.

Heffron acknowledges the need to clean up smaller SMSF balance accounts but believes $500,000 is an arbitrary amount to use as a benchmark. “As a limit that’s a bit of a blunt stick,” he says.

Overall negative message

The ASIC release highlighted ATO figures stating SMSFs held $748 billion in funds at the end of June this year, while industry funds held $719 billion and retail funds $626 billion.

The SMSF sector is under pressure given the expanding array of investment choice being provided by APRA-related funds. The freedom to place funds in a wider array of investments is one of the main benefits of an SMSF.

“SMSFs may be an attractive option for investors wanting more control over their superannuation investment strategy, but it requires real skill, care and diligence to manage your own superannuation,” ASIC Commissioner Danielle Press noted in the release.

Press highlighted the two SMSF reports that led to the fact sheet’s production (REP 575 and REP 576) and warned investors that serious legal responsibilities come with SMSF membership.

“As the trustees of their own fund, SMSF investors must remember that they are responsible for their fund’s compliance with the law, even if they pay a professional to help,” Press stated.

Maroney applauds the regulator’s efforts to warn investors not to take things lightly, but laments a lack of information highlighting the good side of owning an SMSF.

“It sends an overall negative message,” he says. “It should be put forward as a positive one.”

*ASIC’s regulation of the SMSF sector will be a hotly debated topic at the SMSF Association’s National Conference on the Gold Coast in February next year where Professional Planner is a major media partner. Register with an early-bird discount here.