The SMSF Professionals’ Association of Australia (SPAA) has used its Australian Securities and Investments Commission (ASIC) Consultation Paper 216 submission to refute the cost analysis of SMSFs performed by Rice Warner on the regulator’s behalf.
The SMSF industry body expressed its concerns in the submission, saying “the estimated operating expenses and the resulting break-even points compared to the APRA (Australian Prudential Regulation Authority)-regulated funds are higher than expected, especially for higher-balance funds”.
“Because of this we do not think that these calculated break-even points should be used as being indicative of the costs of running an SMSF. The most common cost, such as the median or most common cost, could be used as a more useful guide,” SPAA chief executive Andrea Slattery said.
“Also, the calculated break-even points ignore the very unique and individual nature of SMSFs. Costs often depend on the SMSF’s investments, the trustee’s level of self-administration and what type of administration platform they use.
“Once again, we believe that this issue on costs can be resolved by trustees having access to advisers with better knowledge and understanding of SMSFs so they can have a meaningful discussion on how having an SMSF will fit their individual circumstances.”
SPAA backed up its views with Australian Taxation Office (ATO) figures from the “Self-managed super funds: A statistical overview 2010-11” report that showed 65.5 per cent of SMSFs had an estimated operating expense ratio of 1 per cent or less in 2011 and a further proportion (over 40 per cent) with an operating expense ratio of 0.25 per cent or less.
While rejecting the Rice Warner data as a valid basis for SMSF cost disclosure, SPAA said it supported the proposed increased information requirements about the risks associated with SMSFs as long as it was done in a wider context and not just to address the lack of compensation avenues available to trustees.
The industry association suggested that information should be disclosed “in conjunction with a document detailing the other SMSF risks and disclosures” and not as part of the statement of advice.
Furthermore, SPAA said it did not think trustees should be made to sign a document acknowledging their responsibilities and risks in running an SMSF, in addition to the ATO trustee declaration already in place.
On a positive note, it said it did not think the proposed new disclosure obligations would result in significantly higher compliance costs and thought a six-month period of implementation was sufficient, but a 12-month implementation time frame would be more appropriate in the wake of the Future of Financial Advice reforms.
