Franking credit policy had silver lining

franking credit diversification

A positive development for SMSFs resulted from Labor’s proposed change to franking credit refunds with questions raised around investment diversification.

Labor’s proposed change to the franking credit refund rules in the lead-up to the May federal election did result in a positive development in the SMSF sector, a funds management executive has said.

Vanguard Australia head of market strategy Robin Bowerman told a media briefing in Sydney today: “The debate around the franking credits and the change of policy came with a positive, which was it did bring [forward] the idea of SMSF trustees not being diversified enough.

“[So] a lot of people suddenly went ‘I thought I’d planned my retirement [well], I had this income set up, I’m good’, [then] suddenly a change in government and then policy meant that their retirement plan might have been under threat.

“So what it did was make people realise they were not diversified enough.”

Bowerman noted advisers he had spoken to since the announcement of the policy revealed a large number of their SMSF clients had begun asking whether their fund’s investment portfolio was sufficiently diversified.

This was a good development for advisers as they had more than likely been recommending their SMSF clients employ greater portfolio diversification for some time to no avail, he said.

He also acknowledged the negative impact the proposed policy had on the sector.

“It created a public perception that anyone that had an SMSF was super wealthy and when you actually look at the data, the average numbers are a bit distorted because there are a small group of SMSFs with very, very significant balances that are north of $100 million worth of assets,” he noted.

“The median number we think is much more realistic and that’s more like $690,000 or $700,000 per fund. Of course, most SMSFs have two members and if you take that medium fund balance, then the median member account balance comes down to about $350,000.”

According to Bowerman, it stands to reason the median SMSF balance would be higher than those of public offer funds because SMSF members tend to be older Australians and this cohort would have higher fund balances.

The SMSF Association had previously suggested using sector averages was not the most prudent method to glean an accurate understanding of fund balances.

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