Pointing to the Productivity Commission’s recent findings that low-balance SMSFs perform “significantly worse” than APRA-regulated super funds, the real estate industry super fund, REI Super, said it’s too easy for Australians to set up SMSFs and naïve investors are paying the price.
REI Super CEO Mal Smith noted that one in five SMSFs have balances of $200,000 or less, and said this ATO figure represents a “significant proportion” of the industry subjected to “considerable risk”.
Coupled with the Productivity Commission’s findings that smaller SMSFs tend to deliver “materially lower returns” due to higher costs, he argued that SMSFs aren’t worth an investor’s time unless they have at least $2 million in their balance.
Mr Smith said he’s seen instances of REI Super members leaving to set up an SMSF before returning after being stung by low returns and “hidden fees”.
“One member with an account balance of $100,000 was advised to go into an SMSF by her accountant,” he said.
“Another member was given bad advice and set up an SMSF with her husband with a combined account balance of $300,000.”
Data shared by the Australian Securities and Investments Commission (ASIC) with the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry revealed that nine in 10 SMSF professionals failed to meet best interest requirements. This meant clients “risked being significantly worse off”.
Deputy chair Peter Kell noted that clients could be compromised by this, and acknowledged that one-size-fits-all advice poses an issue.
Mr Smith said returned members cited the difficulty, the time consumption and required expertise as key triggers to ditch their SMSF set-up.
He concluded, “Changes to SMSF rules would help prevent financial advisers from encouraging people into an SMSF when it is not in their best interest.”