Philip La Greca

Advisers will need to understand how the Your Future, Your Super performance test measures are applied to know if it’s in their clients’ best interest to be in a self-managed superannuation fund according to SuperConcepts SMSF technical & strategic services executive manager Philip La Greca.

La Greca tells Professional Planner that if SMSFs and APRA-regulated funds can be compared advisers could be faced with a conundrum if a client’s SMSF is underperforming in comparison.

“If you have a MySuper product that is comparable to your client’s SMSF and it is doing 9 per cent and above the benchmark, what do you do if you have a client in an SMSF who has the same risk profile but only returning 4 per cent? How do you say to the client this is the best place to have your super?”

However, it’s currently not simple to get a fair comparison, with La Greca saying the issue with quantifying SMSF performance is two-fold.

“[The performance test] is about accumulation; they haven’t figured out how to do this on pension-paying funds which is a fair chunk of the SMSF space, so you can’t use those same rules exactly on the pension side,” he says.

“The other issue – and this is where the real interesting discussions are – is we need to start looking at how to calculate performance in SMSFs,” La Greca continues. “SMSFs do not report anything to the regulators about where the money is invested. Tax return data is not about asset allocation, it’s about what structure you use.”

The ATO recently aligned SMSF performance calculations more closely with APRA-regulated funds after research found they were not being fairly compared.

Research from the University of Adelaide found SMSFs with over $200,000 in assets performed “on par” with APRA-regulated funds.

“They have tried to replicate the APRA methodology of doing performance calculations rather than the way the ATO used to do it,” La Greca says of the research. “That at least gives you the ability to do a like-for-like comparison.”

The binary nature of the performance test means advisers are left in an ambiguous position over whether moving a client out of a failed fund is in their best interest.

Potential for review

Last year’s introduction of the performance test rated 80 MySuper products that held $900 billion in assets.

SMSFs make up $876.7 billion of the $3.47 trillion invested in the broader superannuation industry – around the same as the MySuper products – according to the latest data from APRA as of the end of 2021.

Garry Weaven, former ACTU assistant secretary and IFM Investors founder, recently called for a review in the self-managed superannuation fund sector.