The YourSuper performance measure for MySuper funds announced in this year’s federal budget could have significant implications for financial advice which recommends the establishment of an SMSF, a technical manager has said.
“There is a potential knock-on effect of this, there is no question. Remember, as an adviser, one of the things that came out of the FOFA (Future of Financial Advice) changes was the idea of a best interest duty,” SuperConcepts SMSF technical and strategies solutions executive manager Phil La Greca said during the recent SMSF Professionals Day Digital 2020, jointly hosted by selfmanagedsuper and SuperConcepts.
“And so if you’re going to be setting up an SMSF, in effect what you’ve got to be partly saying, certainly [if the client is in] accumulation [phase], is that this fund is going to do better than those APRA (Australian Prudential Regulation Authority)-regulated funds.”
“So the question is going to be ‘can you say that’ and I guess a lot of that will depend on how the investment strategy for the proposed SMSF is structured.”
According to La Greca, advisers cannot make the performance assessment of an SMSF at establishment with a view to the immediate-term only.
“The bigger problem is probably ongoing because certainly ASIC (Australian Securities and Investments Commission), in some of its documentation, has made it very clear that the best interest duty is not a one-off issue. It is an ongoing obligation,” he said.
As such, the adviser has to take into account whether or not a recommendation to wind up the fund should be made if the SMSF is being outperformed by the MySuper funds, he warned.
On a slightly more optimistic note, he suggested advisers need not be too concerned if the performance of an SMSF they recommended to be set up underperformed the said APRA-regulated funds in the first few years of its existence due to having a small asset pool.
“The thing you would probably argue is the APRA performance numbers are [based on] eight-year rolling averages. So you’ve got a little bit of leeway,” he said.
On 6 October the government announced MySuper funds will have their performance assessed under the YourSuper initiative from 1 July 2021 with repercussions for underperformance. It was one of two superannuation measures included in this year’s budget.