The corporate regulator has opted not to nominate a minimum recommended threshold for SMSF balances in updated guidance.
ASIC released the update on Thursday in a move welcomed by the SMSF Association. In a media release, incoming SMSF Association chief executive Peter Burgess described it as a “significant breakthrough”.
Burgess referenced research conducted in partnership with the University of Adelaide released earlier this year that was delivered to ASIC with a request to the regulator to review the guidance.
“It’s worth repeating that the University of Adelaide research found no material differences in performance patterns for SMSFs between $200,000 and $500,000,” Burgess said.
“The notion that smaller SMSFs in this range deliver materially lower investment, on average, than larger SMSFs in this range is not supported by the research.”
The research found a more appropriate minimum threshold is $200,000, although the guidance no longer refers to any threshold for balances.
Only in the best interest
However, Burgess noted that fund expenses are proportionally higher and net returns lower for lower balance funds reminding that opening an SMSF isn’t the best option for every client.
“It’s important for advice providers to remember that the research found SMSFs with balances with less than $200,000 are likely to achieve considerably lower net investment returns compared with funds with balances of $200,000 or more,” Burgess said.
“Therefore, unless a large contribution will be made into the SMSF within a short timeframe (such as within a few months) after the fund is set up, it’s unlikely starting an SMSF with a balance of less than $200,000 is consistent with your client’s best interests.”
In its media release accompanying the updated guidance, ASIC said clients should understand the costs, risk and trustee responsibilities when taking on an SMSF and how it compares running an APRA-regulated fund and the regulator has updated it’s Moneysmart SMSF webpage to reflect this.
“A financial adviser can assist clients with making an informed decision about whether an SMSF is the right retirement savings vehicle for them,” ASIC said.
A spokesperson for ASIC added that the regulator has always considered that balance size is only one consideration of many in determining whether an SMSF is suitable.
“In response to feedback from ASIC’s targeted consultation, we have highlighted the fact that the starting balance of an SMSF is one of a range of factors a financial adviser should consider when determining the suitability of an SMSF for their client,” the spokesperson said.
Burgess said the updated guidance highlighted SMSF risks and the importance of seeking professional advice for anyone who wanted to utilise one.
“The association is very pleased to see such a prominent reference to the need for financial advisers to have specialist knowledge about SMSFs before providing advice and the important need for advisers to maintain this knowledge and expertise over time.”
