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Flipside to minimum SMSF balance requirement

Introducing a required minimum asset balance for people wanting to establish an SMSF could result in adverse consequences for competing sectors of the superannuation industry, according to a sector expert.

“There are new proposed regulations dictating that advisers should warn prospective SMSF trustees they shouldn’t establish one unless they have an asset balance of $200,000,” NowInfinity principal Grant Abbott told attendees at the NowInfinity Conference 2013 in Hawaii recently.

“That’s the last thing the regulator would want to implement because what would happen then? What would happen is that everyone would start to target people in industry and retail funds with balances of say $50,000, who could qualify for a limited recourse borrowing arrangement with a loan-to-valuation ratio of 80 per cent, to exit retail and industry funds and set up an SMSF.

“You could argue the regulator is actually recommending SMSFs in these circumstances. That’s how I’d interpret it.”

Abbott said he believed it would be more prudent for the regulators to establish a level playing field so all practitioners in the SMSF sector had to adhere to the same rules.

“In terms of the property spruikers, they’re operating outside the regulations and I think over time why not bring everyone together so it’s a level playing field,” he said.

To add weight to his argument, he pointed out other practitioners were also providing SMSF advice without proper regulation.

“At present, lawyers are also exempt from the SMSF regulations and there are some lawyers giving clients advice who absolutely have no idea,” he said.

“They can go out and advise on anything in the SMSF sector, like estate planning, transition-to-retirement income streams and reserves. They can do it all and they don’t have to have any qualifications or complete any CPD (continuing professional development) requirements.

“Why is that the case? Why should lawyers be exempt? Why should real estate agents be exempt or mortgage brokers be exempt when there is a limited licence there that can apply to them as well?”

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