Murray inquiry could make SMSFs hum better

Graeme Colley

When the Cooper review handed down its final report into superannuation in July 2010, to the surprise of some (and the chagrin of a few) in the industry, it largely gave the SMSF sector a clean bill of health. As the report said: “The vast majority of submissions supported the view that the SMSF sector, with a few exceptions, generally works well. This view is shared by the panel. The review process has generally confirmed that the SMSF sector is largely a successful and well-functioning part of [the] superannuation system.

“The panel suspects that the most significant aspect of its work in the SMSF sector is that it has not recommended wide-ranging changes. The panel’s SMSF recommendations are not dramatic and largely relate to tinkering around the edges on compliance, audit, adviser competency and like measures. These changes are aimed at ensuring that this growing sector can continue to prosper in an enhanced environment.”

Importantly, the review ruled out educational standards for trustees and minimum balances, two of the issues often employed by the sector’s critics to suggest SMSFs are a train wreck waiting to happen.

Well, three-and-half years on, that train wreck has yet to occur. Certainly the data in the most recent SMSF annual report from the Australian Taxation Office (ATO) would bear out the faith Jeremy Cooper and his panel expressed in SMSFs.

But it was the ATO’s comment about how SMSFs operate (including investment) that caught my attention. It said: “The data confirms the SMSF sector continued to respond to changing economic circumstances. This was evident from changes in the level of growth in SMSFs, contributions made to the sector and shifts in asset types held.

“There were positive shifts in SMSF numbers and the level of contributions, in line with improved confidence in economic conditions. SMSFs are both flexible and resilient in their ability to concentrate or diversify asset portfolios.”

From the SMSF Professionals’ Association of Australia’s (SPAA) perspective, this comment by the sector’s regulator is comforting. In the past year there has been endless speculation about SMSF trustees’ investment strategies (especially in regards to residential property), suggesting they are listening to the siren call of the spruikers who inevitably find a $506 billion honey pot impossible to resist.

The ATO analysis showed, and SPAA has no doubt, there are spruikers in the market and they are targeting SMSFs. What we are far less convinced about is just how many trustees are actually listening. The numbers we have to date are reassuring, showing residential property assets, while increasing, are still only about 20 per cent of the total SMSF property pool, with 80 per cent of that pool in commercial property.

On the borrowing front, too, the latest ATO figures show SMSF debt only increasing from 1.1 per cent a year in 2008 to 3.7 per cent in 2012; again, a minute percentage of all assets and hardly indicative of trustees borrowing with their ears pinned back.

Those are the facts; the rest is speculation. So it is to be hoped the current inquiry into the financial services system, to be chaired by former Commonwealth Bank of Australia chief executive David Murray, will spend some time examining how SMSFs and the superannuation sector as a whole invest. Hopefully, this will produce some forward thinking as to how the available pool of assets can be expanded.

After all, when the Wallis inquiry into financial services handed down its report in 1997, superannuation had only $261 billion in funds under management, while today the SMSF sector alone is about double that amount.

SPAA contends SMSF trustees, and their advisers, largely get it right on investment. The ATO’s investment performance of SMSFs confirms this. And if their asset allocation does reflect a preponderance of Australian blue-chip equities and cash, then perhaps it’s because getting access to other assets, such as infrastructure, is difficult.

If the Murray inquiry can lay some guidelines to facilitate the investment process for SMSFs, then it will have been a worthwhile initiative and will help ensure Cooper’s comments about SMSFs remain valid.

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