Swashbuckling ASIC Butchers SMSF Advice

ASIC appears to be using averages that everyone knows are grossly distorted by a small number of very high value funds that have $5m-plus on the books.

Talk about using a sword where a scalpel might have done the trick: The Australian Securities and Investment Commission has come down clumsily against the nation’s million plus self-directed investors as it tries to clampdown on rogue self-managed super funds (SMSFs).

Armed no doubt with good intentions, a new ASIC “fact sheet” on SMSFs smacks of excessive force which could do a lot of damage to a sector still recovering from the franking credits furore earlier this year.

ASIC suggests that running an SMSF takes 100 hours a year! Really, what are these people supposed to be doing? It’s true, only in the same way it might takes 100 hours a year to look after your garden. In reality, you can have an uncomplicated DIY super fund running and it does not take 8.4 hours a month.

In relation to costs, ASIC says you need $500,000 to start an SMSF because the fees on average will be $13,900 a year. Unless you were trading in some demented fashion or perhaps you were obsessed with getting second opinions from financial advisers you will not face fees of even half this estimate.

John Maroney CEO of the SMSF Association flatly rejected the $13,900 annual fee estimate: “Our understanding is that many SMSFs operate with total annual expenses below $5000.”

Jeremy Cooper who ran the Cooper Super Review tagged the estimate as something that “needs a lot more transparency on how this figure was derived to be credible”.

As Maroney argues: “The reality is that it is very hard to make accurate cost effectiveness comparisons – a point ASIC’s document would appear to concede.”

In other words, every SMSF is different and ASIC is not comparing apples with apples here. In fact, the issue is at the heart of the debate around stronger or weaker large funds but it is even more pertinent in this diffuse sector where diversification means different things to different age groups.

Distorted averages

ASIC appears to be using averages that everyone knows are grossly distorted by a small number of very high value funds that have $5m-plus on the books.

This cohort of the SMSF brigade is not representative, but it has caused disproportionate trouble for the sector.

These days, with a pre-tax cap of $25,000 and a post-tax cap of $100,000 in annual super contributions, very few can again build up funds with millions in them, but ASIC ignores this.

The preamble to the fact sheet says “ASIC believes that consumers are all too well aware of the potential benefits that might stem from using a SMSF, but are not equally alive to the considerable risks and responsibilities that come with the deal”.

Of course people should be warned that SMSFs may not suit them and efforts should be made by all concerned to quash rogues who masquerade as advisors in this area.

But ASIC’s claim that the dangers of SMSFs don’t get much press just does not stand up to scrutiny, if anything the opposite is true.

By James Kirby - The Australian's Wealth Editor, is one of Australia's most experienced financial journalists. He is a former managing editor and co-founder of Business Spectator and Eureka Report and has previously worked at the Australian Financial Review and the South China Morning Post. He is a regular commentator on radio and television, he is the author of several business biographies and has served on the Walkley Awards Advisory Board.

The Australian

15 October 2019

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