Royal commission a double-edged SMSF sword

The latest buzz in financial services circles in the past few weeks has been the announcement of a royal commission into the banks.

The terms of reference for the inquiry include the superannuation industry, but thankfully exclude the SMSF sector.

And this has to be a win for common sense. SMSFs have been meticulously examined through the Stronger Super review, conducted by Jeremy Cooper, and the Financial Services Inquiry, conducted by David Murray, so I would argue there is really no need for further scrutiny.

Throw in the current Productivity Commission review into the efficiency and competitiveness of the superannuation system and that chalks up three inspections over the past decade.

The number of reviews gives cause to argue no more are needed for the time being, but so too does the consistent conclusion that SMSFs are functioning very well.

However, I don’t believe the sector can be naive enough to believe it will escape some sort of involvement during the royal commission proceedings.

I don’t think it would take a genius to realise the industry funds have been dragged kicking and screaming into the review of the banking sector and, following on from this sentiment, I feel we can expect some degree of mudslinging aimed in the SMSF direction.

With any luck, any ‘noise’ arising from commission submissions and appearances will be ignored with no further formulation of unnecessary regulations that can have a stifling effect on the sector.

The royal commission is not all beer and skittles though. It would be doubtful many of the 600,000-plus SMSFs in existence would not have big four bank shares in their portfolios.

As the inquiry plays out, time will only tell what effect this will have on the value of Westpac, CBA, NAB and ANZ shares. However, following the announcement of the royal commission, the share price of all these institutions fell once the news broke.

It means the value of SMSF share portfolios may fall as a direct result of the royal commission and, depending on where a member or trustee might be in their life cycle, that could represent a blow they do not need.

It’s easy to forget the royal commission also includes a closer look at financial services and that means the practices of bank-employed financial planning staff.

This will no doubt entail an examination into whether or not bank-employed financial planners are there to look after the best interests of the institution or the client. This is usually performed through the lens of product recommendations and how appropriate they might have been.

The SMSF sector may well experience some indirect flow-on effects from this part of the inquiry as a significant amount of concern over SMSFs has been the spruiking from product providers and real estate agents of investments and strategies that may be inappropriate for trustees or actually even illegal.

However, if additional regulation to stop inappropriate practices and products from being recommended comes as a result of the royal commission, it should be regarded as a positive from an SMSF perspective because, if implemented properly, it will allow for better protection of retirement savings.


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