The Self-managed Independent Superannuation Funds Association (SISFA) has refuted recent claims from certain quarters of the industry that there is systemic risk involved with the SMSF sector.
“Systemic risk in our superannuation system would only reside at the big end of town. How systemic risk occurs is if you’ve got one massive entity that experiences any particular failure that in turn affects hundreds of thousands of individuals in one fell swoop,” SISFA chair Michael Lorimer told selfmanagedsuper.
“Just because you have one SMSF that makes a poor investment decision, or is the subject of bad advice or the like, it doesn’t affect the other 509,000 SMSFs.
“So the chances of the SMSF sector failing as a sector is virtually zero. It’s not going to happen.”
Lorimer said statements suggesting the sector had inherent systemic risk associated with it indicated a larger part of the financial services industry still did not understand how the SMSF arena was structured and how it operated.
“The challenges the SMSF sector has had to face over my entire career have always been the same,” he said.
“Most of it can be explained by coming from self-interested parties who don’t like the sector for all sorts of reasons and genuinely don’t understand it. And they’ve never understood it.
“The SMSF sector is a collective of a whole bunch of individuals and until the big end of town properly understands that fact, they will never be able to properly participate or have an informed view on how the SMSF market works.”
Apart from the misguided commentary, the product innovation offered by some of the Australian Prudential Regulation Authority-regulated funds to counter SMSF leakage was another illustration of the lack of knowledge about the sector, he said.
“Some of the big funds have come out and said ‘we’re a bit concerned a few of our people with large balances are leaving and setting up SMSFs so, guess what, we’ll put in a DIY option in our fund so people can do their own share investing through our platform’,” he said.
“That’s not what people want. They’re building these things and they genuinely don’t get it.
“People don’t set up an SMSF just so they can do some share trading. It’s all about control and ownership and they know that even if they’ve got plenty of investment options through a particular platform, if ultimately it is still sitting under the auspices of a totally arm’s-length prudentially regulated trustee, they know it’s not really under their control.
“That’s why people opt for an SMSF.”
