A change to advice on how super funds should be managed has been described as a “significant breakthrough” by industry experts.
The Australian Securities Investment Commission (ASIC) has announced it has decided to remove the $500,000 asset balance it previously recommended should be the threshold for investors to engage professional advice to establish a fund.
In updated advice, ASIC has proclaimed it will no longer nominate a minimum threshold, while at the same time warning that SMSF net returns were generally lower for low balanced funds.
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SMSF Association deputy chief executive and director of policy and education, Peter Burgess, told Super Review the move was a “significant breakthrough” and said research showed a more appropriate threshold was $200,000.
“The University of Adelaide research found no material differences in performance patterns for SMSFs between $200,000 and $500,000, so 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,” he said.
“It’s extremely pleasing that the regulator has taken heed of this research and our representations on this issue and has removed references to the $500,000 threshold.”
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In a statement ASIC said a superannuation balance, whether high or low, while important, was only one factor when considering a SMSF.
“Other important factors include the risks and costs associated with setting up and/or switching to an SMSF, investment strategies, diversification, liquidity, asset choice, trustee responsibility and time-commitment and the potential benefits of professional advice when deciding to set up and/or switch to an SMSF,” an ASIC statement said.
Other changes ASIC made to its SMSF advice tip sheet for financial advisors include reinforcing recommendations about the risks of SMSF and the importance of seeking professional advice.
“Clients should understand the costs, risks and the trustee responsibilities that they would take on in setting up an SMSF and how this compares to their existing APRA-regulated fund,” ASIC said in a statement.
“A financial adviser can assist clients with making an informed decision about whether an SMSF is the right retirement savings vehicle for them.”
ASIC also updated comparisons about SMSFs and Australian Prudential Regulation Authority-regulated funds (APRA).
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ASIC reviewed its advice in collaboration with key industry participants with the aim to simplify SMSF recommendations and was influenced by ASIC’s key strategic priorities of protecting consumers as they plan their retirement.
The new tip sheet for financial advisors replaces two separate information sheets. The new advice confirms information on the costs and trustee responsibilities for setting up a SMSFs.
It also outlines legal compliance for advisors and appropriate professional advice including costs and if a SMSF is appropriate for clients.
ASIC regulates SMSF and is responsible for policing dishonest conduct and fraud, unlicensed advice, contraventions of a code of ethics and contraventions relating to SMSF auditors. It can take civil, criminal and administrative action against defaulting advisors.
ASIC estimates $865 billion in assets is currently held under SMSF management.
Have you considered a self-managed super fund? Were you put off by the recommended $500,000 balance threshold? Why not share your experience in the comments section below?
