For the serious, active investor it is hard to beat a self-managed super fund, but this year events conspired against the self-directed investor: yes, markets have been challenging, but an outstanding problem has been a regulator that has made the entire business of running your own fund look like a losing proposition.
Put simply, the regulator issued a de facto warning that a SMSF will annually set you back by up $7710 and take 100 hours of your time: these estimates were then published, aimed particularly at investors thinking of starting a fund.
For anyone who is already running a fund, the figures were obviously pie in the sky: misleading and at worst irresponsible.
In fact, the overall presentation of ASIC on the issue of SMSFs was so open to negative interpretation that any reasonable person would think public servants either did not understand SMSFs or had something against them.
Along with the misleading estimates, ASIC also broke a golden rule of investing (a rule the regulator would impose on any product promoter in the market), which is that past returns should not be offered as a guide to future performance. Yet the regulator said that bigger funds always beat SMSFs. No kidding.
Earlier this year you could go on the ASIC website and it said: “On average SMSFs won’t beat professionally managed funds.”
ASIC’s Moneysmart website also told the public: “You run every aspect of the fund yourself.”
What? Another howler …
With any SMSF you don’t have to do it all yourself. That is why we have financial planners and accountants.
The good news is that the Australian Securities & Investments Commission has now quietly backed down. In a deft reorganisation of the script it presents to anyone interested in SMSFs, the regulator has changed its tune.
We had some inkling that ASIC might review the whole issue when in July chairman James Shipton told a parliamentary inquiry that the contentious figures were “stale” — a rarely used term in financial markets but one that clearly meant some folk inside ASIC were going to be sent back to the drawing board.
So what do they say now?
First, the regulator has put forward a figure for described as “the operating cost” of running an SMSF — the median cost is now $3923 a year, against the median previously published as $7719. The average operating costs are now put at $6152, against $14,879.
The average figures remain misleading because they are skewed by a handful of funds that have tens of millions in their accounts in contrast to most funds where there is about $700,000 on the books. It appears the newly published cost are nearly half previous estimates because certain costs that should never have been included, such as life insurance, have been removed.
Second, anyone thinking of starting a new fund is told that historically bigger funds have done better than SMSFs — this remains a debatable point. There is no way you can do a generic measure of big funds against SMSFs because each one is individual and has unique settings.
Third, as for having to run “every aspect of the fund yourself”, well that line has disappeared into the either.
Fourth, the 100 hours a year estimate remains in place based on a third private sector survey. Again, this remains suspect especially if an SMSF is based on a low-maintenance mix of assets.
Glad to see the changes
“They were not comparing apples with apples and we are glad to see the changes that have been made,” says John Maroney, the CEO at the SMSF Association.
The move to review the figures comes after the ATO, which is the regulator for SMSFs, published statistics showing the operational expenses in SMSFs were at an annual median of $3923.
ASIC has done a lot of good work, especially with its Moneysmart website, a key gateway for new investors. There is a genuine attempt to protect investors in most of the regulator’s guides, especially in property. But for SMSFs the move to protect has looked like a move to smother.
Regulators don’t back down easily, especially when they have put it out there in the public domain — so take note, even if industry and retail funds continue to use the old ASIC figures out of context, which we can’t rule out.
Despite all the negatives piled up on SMSFs in 2020, the sector has continued to grow this year, if more slowly than in years past.
One useful change that looks likely to get signed off for the sector in the coming weeks will be a move to allow the maximum number of members in an SMSF from four to six.
Superannuation and Financial Services Assistant Minister Jane Hume has put a bill before parliament to get the larger SMSF membership legalised. The change nearly made it through last year but it became tangled in what they call an “omnibus” bill.
This time around it is a single bill and should get through.