Whimsical decision making and property ‘sexiness’: Are funds capable of unbiased advice?

APRA-regulated superannuation funds are the stewards of retirement for the vast majority of Australians, holding around $2.5 billion of retirement savings across roughly 22.6 million accounts.

On the other hand, according to the most recent numbers from the Australian Taxation Office (ATO), there are 611,961 self-managed super funds (SMSFs) with 1,142,957 members and $884.6 billion in assets.

This represents a significant share of the overall pie, particularly in terms of assets under management (AUM), and the data suggests that SMSFs generally boast larger balances than their APRA-regulated counterparts.

But despite the figures pointing to the sheer popularity of SMSFs, this week we learnt that some individuals within the large super funds believe they are being set up on a whim and without much understanding.

On a recent episode of Australian Retirement Trust’s Super Insider podcast, national manager of strategic education at ART, Joshua van Gestel, and executive general manager of advice, guidance and education, Anne Fuchs, downplayed the level of consideration that individuals are giving before establishing an SMSF.

“I think a lot of people hear self-managed super and think, ‘Well, I did my own bathroom in the house, or I did my own renovation, maybe I can do my own super?’” said Mr van Gestel.

“And I think a bit like renovating the house, sometimes people don’t actually realise that there’s a lot more work to it.”

It would be interesting to know if this supposition is grounded in tangible evidence, as it’s challenging to imagine that a successful bathroom renovation is the catalyst behind SMSF establishments.

The pair went further, however, to imply that Australians are drawn to SMSFs because of their “obsession with property”, with Mr van Gestel suggesting “there is this sexiness” associated with acquiring property through super.

These claims, however, relied on little more than admittedly anecdotal evidence.

“Is there something to do with Australia’s obsession with property that plays into it? Anecdotally or not?” Ms Fuchs asked.

Mr van Gestel responded: “I think it is. I think it’s actually a number of things, that there is this sexiness about, ‘Hey, I can get property with my super’, but it’s not that easy. You tend to see that fees for a self-managed super fund will start at about $2,000 and go up from there.

“So, people tend to realise that it’s more expensive than maybe I set out on. Secondly, when it comes to then the amount of work, I think people think, ‘Yeah, I’ll set up a self-managed super fund, buy property, whack it in and off we go’.”

“She’ll be right, mate,” added Ms Fuchs.

The pair then moved on to stress the complexity of establishing an SMSF, apparently not clocking the disconnect between lamenting how flippantly people are making the decision on one hand and acknowledging that it’s an intricate process on the other.

No professional within the SMSF sector would tell a prospective trustee that there aren’t challenges involved in establishing and running an SMSF. In fact, a number of professionals within the space told ifa sister brand SMSF Adviser that the SMSF community is well aware the structure is not appropriate for everyone’s retirement plans.

David Busoli, principal of SMSF Alliance, likened the comments in the podcast to “asking a vegan what they think about steak”.

“We know SMSFs aren’t for everybody and the points that were made in the podcast were largely valid but there was no counter argument,” he said.

Smarter SMSF chief executive Aaron Dunn, meanwhile, argued that the sector is now mature enough to admit that SMSFs are not for everyone.

“However, the response that SMSFs are too hard and difficult when we know there are people who are totally appropriate is very siloed thinking,” he said.

“From our side, we wouldn’t be sitting here as an industry and saying the only thing to do is move all your super from an SMSF into an industry fund.”

Casting doubt on advice within super funds

Referring to the government’s push to expand the advisory powers of super funds like ART, Liam Shorte, financial planner, SMSF specialist adviser and director of Sonas Wealth, questioned whether they could do so without bias.

“In this podcast, the superannuation expert doesn’t deal with day-to-day superannuation needs and does not understand asset allocation and investment that now exist in SMSF,” Mr Shorte told SMSF Adviser.

“He is saying that it is hard to diversify in an SMSF but with ETFs now, SMSF trustees can get diversification across the world. I was upset that the podcast was only looking at all the negative points. Things have moved along. SMSF costs are lower, and you can manage one for as little as $600 and year up to $6,000, depending on your needs.”

Indeed, it’s a little concerning that these comments come from the second largest superfund in Australia (ART holds more than $260 billion in retirement savings for over 2.3 million members) less than two months after Financial Services Minister Stephen Jones announced the introduction of a so-called new tier of advisers – “qualified advisers”.

What does this say about how super funds are going to operate when providing advice? If a member is a good candidate to establish an SMSF, are “qualified advisers” employed by a super fund likely to steer them away from establishing an SMSF to retain business?

These questions are at the heart of the concerns that many within advice raised when the Quality of Advice Review reforms were announced, fearing a return to the pre-royal commission state of play for institutional advice.

In ART’s defence, both Ms Fuchs and Mr van Gestel noted that anyone looking to establish an SMSF should obtain expert advice. Ms Fuchs pointed to the super fund’s website and its “panel of external financial advisers”, while Mr van Gestel warned against going in blind.

“If you are wanting to think seriously about a self-managed super fund, that’s great. But engage with an adviser. Engage with an expert that can actually weigh it up for you, rather than you just racing in because you think it’s the next best thing,” he said.

Unfortunately, when these meagre bright spots are tucked away at the very end of a podcast spent dwelling almost exclusively on the negatives, it reinforces the scepticism so many already hold about the role of institutional advice.