SMSF Blog

A couple of news articles had me reflecting on the reasons for the ongoing growth in the numbers of SMSF’s.

The first was the release of the ATO’s regular “Self-managed super fund statistical report – December 2011”, a regular treasure trove of data for SMSF analysts. The headline table “SMSF Population” which sets out the total number of funds at the end of each year demonstrates growth in fund numbers. Over the period June 2004 to June 2011 the total number of funds has grown at a compound annual growth rate of more than 7% pa (with relatively consistent growth in every year).

AT DIYSuperAudit we are not surprised by this growth given the advantages of SMSF’s. In additional to giving trustees control of their super savings, an SMSF is frequently the most secure, flexible and efficient investment vehicle available to individuals once they have reasonable superannuation balances.

Two articles reinforced this belief – the first “Super funds face payout” (AFR 1 March 2012) notes the Australian Prudential Regulation Authority, which is to be given greater supervisory powers over the super industry, has proposed that super schemes aim to set aside 0.25 per cent of assets to refund members if errors, such as mispricing of units, were made (this will apply to public offer funds, not SMSF’s). The article throws some big values around – $520m which retail super funds will need to set aside in reserves. And where will this come from? The article suggests that in the case of Retail Superfund this will come from shareholders of the operators. Industry funds may be more challenged as they do not have Shareholder reserves to draw upon. As an investor, I suspect that one way or the other; this cost will ultimately be passed on to me. Furthermore, I wonder what other costs might be lurking in those “administrative expenses”. Once again, the question of who controls your investments and associated costs arises.

The second article was the Financial Planning Association’s (“FPA”) response to the Parliamentary Joint Committee (PJC) report on FoFA (“Future of Financial Advice”) quoted below:

“The FPA is disappointed with the overall recommendations outlined in the PJC’s report on FoFA. Whilst the report acknowledged some of the concerns raised by the FPA, the majority of the suggestions the FPA made throughout the inquiry, and indeed recommendations made by other representatives of the financial planning industry, have not been adopted.

Recommendations put forward by the FPA which weren’t adopted in the final PJC report include:

• The removal of Opt-In renewal requirement;
• The annual fee disclosure statement requirement to be removed and/or amended to only apply to new clients;
• A request for an amendment to the Best Interest duty, in particular section 961B(2)(g);”

In other words, the FPA wants to deny investors the right to decide whether the fees they are paying on an ongoing basis for financial advice is reasonable. Nil control for the investor – intuitions which appear to be able to arbitrarily charge and change fees and advisors who take a fee every year without consultation (unless the investor goes to another adviser). In other words, nil investor control of fees.

One of the reasons many people move to establish an SMSF and control their own savings is the belief that retail super funds are not transparent or give them sufficient control and security over their own savings. The two articles above, when taken together, indicate that retail funds and FPA (despite their stated interest and desire to expand into the SMSF space) do not yet appreciate the need for absolute transparency and investor control, particularly once investors understand the advantages of an SMSF.