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New report busts small balance myth

SMSFs with smaller balances were not found to be uneconomical over extended periods as some industry commentary has long suggested, the latest analysis from Class has revealed.

The “June 2016 SMSF Benchmark Report” provided an overview of data about SMSFs and administrators with a key focus on whether smaller balance funds were cost-effective.

The analysis revealed that for SMSFs with balances of less than $50,000, the population of those lower balance funds was largely made up of funds that were new and growing, or shrinking and exiting.

Also, on average, those lower balance funds come and go from the under $50,000 bracket in about two years, and given that high turnover, it was incorrect to assume funds with low balances were sitting around for many years paying ongoing high fees, the report said.

“People want to know what works and what doesn’t work and there’s obviously a focus on whether SMSFs deliver on the promise in terms of their provided benefits to the trustee,” Class chief executive Kevin Bungard told selfmanagedsuper.

“It’s important for people to actually understand the dynamics of the industry and that there isn’t a huge population of small balance funds that people, for some reason, are investing in and paying high fees for – that’s not an accurate representation of what’s going on.”

Commenting on the key findings, Bungard highlighted that the SMSF industry had a gut feeling that was the case.

“Many were saying surely those would just be funds that were just starting or funds that are being drawn down,” he said.

“So it’s always good to check your gut feeling, and validate and confirm that because this way, when someone asks the question, we can be definitive as an industry to say, no there isn’t lots of $50,000 SMSFs sitting around for x amount of years where people are not paying attention.

“And it would be surprising if they were when you consider that the level of SMSF trustees’ engagement is so high, you can’t imagine that someone would set up a fund with $20,000 and then ignore it for five years.

“The data confirms that there actually isn’t a problem.”

The “June 2016 SMSF Benchmark Report” is the second quarterly study analysing the over 110,000 SMSFs administered on Class Super, representing 19.2 per cent of the estimated 577,236 SMSFs in Australia.

“We started the SMSF Benchmark Report because we thought we’re at a size where we could get more real-time reliable data and look for insights into what was happening in the industry and with the administrators, rather than waiting for periods at a time for the ATO and others to pull their numbers out,” Bungard said.

“Our objective was always to be able to take anything that’s topical or being discussed in the industry and to see if there’s something we can contribute based on whether we can do an analysis on information that’s available.”

The report is compiled using a selection of de-identified data extracted from across the Class Super user base.

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