ASIC has announced that it will be piloting sending a fact sheet to new SMSF trustees in November. The factsheet – called Self-Managed Super Funds: Are they for you? – has proved controversial in the SMSF sector, with the SMSF Association now questioning if it is balanced.
The SMSF Association says the letter is a “timely warning” about getting specialist advice before starting an SMSF. But CEO John Maroney added that the tone of the letter is “disappointing” and it “casts SMSFs in a very poor light”.
“By the Fact Sheet’s focus on risks and the use of inconsistent data sources, SMSFs are again portrayed negatively, especially those funds with balances of less than $500,000.”
“Although the document explicitly states that ‘care must be taken when using SMSF performance figures, particularly when making comparisons’, it still argues that SMSFs with balances below $500,000 underperform, on average, the APRA-regulated funds,” said Maroney.
The fact sheet says that “SMSFs with balances below $500,000 have, on average, lower returns after expenses and tax compared to industry and retail super funds”, which is supported by the Productivity Commission report into superannuation. Though the fact sheet also uses ATO statistics, which the tax office warns about using for comparisons.
The SMSF Association also takes issue with the figure of $13,900 as the average cost of running an SMSF.
“The use of averages ignores distortions from very large SMSFs and those who choose to use extensive administration and investment services,” said Maroney.
“We will consult with ASIC on the use of this figure, noting that the SMSF software provider, Class, in its submission to the Productivity Commission, indicated the adjusted average cost for lower balance funds was about half that amount or even lower, while our understanding is that many SMSFs operate with total annual expenses below $5,000.
The figure of $13,900 as the average annual cost of running an SMSF appears to come from ATO statistics. Though these statistics use ‘total expenses’, which includes such items as interest expense and insurance premiums.
Maroney said the comparisons between SMSFs and APRA-regulated funds in the fact sheet “lack balance”, given issues with the data, differing methodologies of calculating investment returns and expenses, and the “retiree demographics” of SMSFs.
“The reality is that it’s very difficult to make accurate, cost-effectiveness comparisons, a point ASIC’s document would appear to concede.”
“For example, SMSF establishment and advice costs vary considerably to the costs incurred by APRA-regulated funds, in the process materially distorting SMSF returns, especially for new and lower balance funds. Another example is the fact insurance premiums and interest payments on investment loans are included as expenses for SMSFs and not for APRA-regulated funds.”
“We also argue that the cost-effectiveness debate must be extended beyond a mere analysis of net returns and costs and consider the cost of running an SMSF over the long-term, as well as the varied motivations that SMSF members have in setting up their own funds, such as increased control and their individual retirement goals.”
The SMSF Association also said it was “curious” to cast it taking over 100 hours a year to run an SMSF as wholly negative, in the fact sheet.
“From our perspective it is a positive outcome if people are taking the time to actively engage with the investment and management of their retirement savings,” said Maroney.
“It’s always been our policy that SMSFs are not for everyone and before anyone sets one up it should be appropriate for their financial and personal circumstances.”
“For people who are prepared to take the time and effort to personally oversee their retirement savings, SMSFs can be very empowering.”