SMSF trustees’ nous endorsed

Since the afternoon of 4 February, the talk dominating financial circles has all been about the final report from the banking royal commission.

Views have varied as to whether the recommendations have been severe enough to stamp out the poor and illegal behaviour uncovered during the hearings throughout last year.

While the SMSF sector was not specifically included in the commission’s terms of reference, the findings do, I think, provide an endorsement of the decision individuals have made to run their own superannuation funds.

Research report after research report has shown the main motivation for establishing an SMSF is the desire of individuals to have more control over their retirement savings. To this end it can be suggested SMSF trustees have made the choice to run their own fund due to poor experiences with having a larger financial institution perform this task.

This sentiment may have resulted from fees that were deemed too high or returns that were not high enough.

Either way, they didn’t need a royal commission to tell them this was happening, nor did they rely on any recommendations or legislation to prevent them from continuing to suffer at the hands of these organisations.

Instead, they decided to do something about it themselves and I say more power to them for doing so.

One recommendation commissioner Kenneth Hayne made that I thought highlighted the remarkable nature of SMSFs, in particular the growth of the sector, was the banning of hawking of superannuation funds. This means in future, financial institutions will not be able to have an unsolicited discussion to have a person join the super fund they are running.

Unlike retail or industry funds, SMSFs in the main have not been sold as a result of any financial bonus on offer.

Yes, critics will say accountants have promoted the establishment of SMSFs too vigorously, and while they are potentially doing this to further their books of business, often the suggestion to set one up is based on a conversation about tax-effective strategies.

Critics no doubt will argue property spruikers have played their part in the growth story too. While the promotion of SMSF establishments by these opportunists is a concern, it would be inaccurate to say their influence has been a significant factor in the sector jumping to nearly 600,000 funds.

Another positive reflection on the sector I’d say.

Speaking of positives, the recommendation for the establishment of a compensation scheme of last resort is really good for SMSFs.

Effectively, Hayne said the body should exist to deal with uncompensated losses resulting from collapsed financial services providers. The organisation has to have been a member of a dispute resolution body and claims made to the new scheme are for amounts that exceed the monetary limits of other dispute resolution bodies.

This should finish the debate around whether SMSF investors should qualify for compensation offered upon product provider collapses such as the Trio Capital situation. There it was deemed SMSFs did not qualify for the government’s compensation arrangement offered to members of the larger public offer funds because they did not pay levies for this type of safety net via the Australian Prudential Regulation Authority.

If the new scheme means negative discrimination against certain retirement savings structures is eliminated, then I’m all for it.


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