The Australian Financial Complaints Authority (AFCA) has confirmed it does not consider the concept of a minimum member balance with regard to SMSF establishment as a sole determinant when assessing a consumer action.
AFCA senior ombudsman investment and advice Alexandra Sidoti indicated the balance of benefits used to set up an SMSF cannot be used to judge the success or failure of a fund due to a series of other factors that might be present at the time but not obvious at face value.
“It very much does depend on the client’s circumstances. You might have a circumstance, for example, where a client is walking in with a really low balance but there are expectations of early significant contributions to that,” Sidoti told AFCA member forum attendees yesterday.
“It might be they’re about to sell an investment property and anticipate putting the proceeds into the SMSF, or maybe they’ve got an inheritance that they’re about to contribute to the SMSF,” she added.
“So the starting balance alone isn’t the factor [that should be considered].”
“Sometimes there are other factors, like if someone has a small business, [meaning] there might be other [aspects] associated with that vehicle which is really specifically appropriate to their circumstances,” she noted.
According to Sidoti, a determination of whether an SMSF is an appropriate retirement savings vehicle for a particular individual when a rollover is involved needs to take into account its cost effectiveness in conjunction with the aforementioned elements.
“When you look at the cost effectiveness you have to really look at the proportionality of the [fees involved]. A simple way of doing that is to [line] up all of the fees and costs of the superannuation vehicle they are currently in and compare that to what it would look like if they have an SMSF with its current balance,” she explained.
“[In situation where] the starting balance isn’t looking great and the proportionate costs are looking a bit high, but you’re anticipating [triggering] the [non-concessional contribution] bring forward provisions and put another $300,000 or something, that’s going to really change what that cost effectiveness looks like quite early on,” she said.
“So all of those are relevant considerations.”
Darin Tyson-Chan
Editor
Darin is the founder and publisher of Benchmark Media, an independent publishing house whose mastheads include financialobserver, selfmanagedsuper and smstrusteenews. He has been covering the financial services space for over a decade and in this time he has worked for a variety of trade publications. Darin has also written for the Money section published in The Sydney Morning Herald and The Age.
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