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SMSFs

Research released earlier in the year has redefined the minimum asset balance that renders an SMSF competitive with public offer fund performance.

Myths and inaccurate assumptions about SMSFs have plagued the sector throughout its existence. These elements have often been the basis of unfounded criticism of SMSFs and unfair findings into the sector by government bodies.

As I’ve noted before, a lot of the criticism has centred on a cost base, which in a lot of ways has been assumed, regarding the running of an SMSF.

From that cost base, often set at around $3000, an arbitrary amount was extrapolated to determine the minimum amount of money required to prudently and responsibly establish an SMSF.

This minimum amount has often been as ridiculously high as $1 million or at least $500,000.

However, in November 2020, Rice Warner research conducted in conjunction with the SMSF Association determined a balance of $200,000 enabled an SMSF to be cost-competitive with public offer funds.

Of course, this still left the ability for critics clouded by self-interest to argue the cost base was one thing, but there was no way SMSFs could be comparable with the rest of the offerings in the industry in terms of investment performance. Well not anymore.

As we reported back in February, the SMSF Association, this time in a joint exercise with the University of Adelaide, produced the results of research into the performance of SMSFs. The findings revealed the investment performance of a typical SMSF improves as the fund balance approaches $200,000 and will be comparable to Australian Prudential Regulation Authority (APRA)-regulated funds once this threshold has been reached.

Again, research demonstrated $200,000 is the magic figure for SMSFs, this time from an investment return perspective. To use a sporting reference, this has to be game, set and match on the argument about a recommended minimum balance for SMSF establishments.

Further, the study revealed there was no material difference in portfolio returns for SMSFs with a balance of $500,000 versus SMSFs with asset holdings of $200,000.

When these figures were released, the SMSF Association said regulatory guidance around minimum balances for the sector was poorly calibrated. Who can disagree or not believe all government body attitudes toward this subject require revision.

For example, the Australian Securities and Investments Commission’s current fact sheet INFO 206 stipulates SMSFs that have total member benefits of less than $500,000 generate lower returns than their APRA-regulated counterparts.

But ask yourselves this question: Have you heard any discussions about what can only be considered groundbreaking findings from this research? I severely doubt any of the mainstream media has covered it other than the day the data was released.

And as for the government agencies, we have heard some of them admit they will be looking at these findings closely to get an understanding of what they could mean. Your guess is as good as mine as to just how long this might take.

In the meantime, the uninitiated will still be of the belief you can’t start an SMSF unless you have at least $500,000 with which to do so.

Accuracy of information is imperative for individuals when they are assessing the type of superannuation structure that might be suitable for them and the sooner a more accurate threshold is acknowledged, the better it will be for the efficacy of the retirement savings system.

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