SMSF Association applauds ASIC’s move

Last week, the corporate regulator said it would remove $500,000 as an indicator of “appropriateness of advice” to establish a self-managed super fund (SMSF), which the SMSF Association welcomed with open arms.

The change was part of ASIC’s latest updates on guidance for SMSF advice.

Commenting on the regulator’s decision not to nominate a minimum threshold, SMSF Association deputy CEO Peter Burgess said “it’s a significant breakthrough for our sector”.

Earlier this year, and in light of fresh evidence in a University of Adelaide research report on the performance of SMSFs, the association wrote to ASIC, requesting that it review its guidance for Australian Financial Services Licensees (and their representatives) who provide advice to retail clients about SMSFs.

“In particular, references in ASIC INFO 206 to SMSFs with balances below $500,000 as having lower investment returns and will often be uncompetitive compared with APRA-regulated funds was at odds with the findings of the University of Adelaide research conducted on a sizeable proportion of the SMSF sector,” Mr Burgess said.

“It’s worth repeating that 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. The research shows that a more appropriate threshold is $200,000,” he noted.

As such, Mr Burgess said it’s “extremely pleasing” that the regulator has taken heed of this research.

He, however, noted that while ASIC’s guidance no longer refers to a threshold balance, it’s important for advice providers to remember that the research found SMSFs with balances of less than $200,000 are likely to achieve considerably lower net investment returns compared with funds with balances of $200,000 or more.

“Therefore, unless a large contribution will be made into the SMSF within a short time frame (such as within a few months) after the fund is set up, it’s unlikely starting an SMSF with a balance of less than $200,000 is consistent with your client’s best interests.”

In conclusion, Mr Burgess stressed the need for financial advisers to have specialist knowledge about SMSFs before providing advice.

Also last week, new figures from Wealth Data revealed that the number of SMSFs per adviser climbed to 38.04 at the end of the third quarter of 2022, compared to a low of 20.35 at the end of 2018.

The increase has been steady over the quarters since hitting the 20.35 low, climbing incrementally each year to reach 36.1 at the start of 2022, while the number of advisers in the industry fell below 16,000 at the same time.