In response to the Australian Securities and Investments Commission’s (ASIC's) new proposed SMSF disclosure requirements, Townsends Business & Corporate Lawyers principal Peter Townsend has hit out at vested interest groups that “have a reason for wanting to see SMSFs hobbled in some way” and are cautioning about the dangers of SMSFs.
Consumers are no more likely to lose money in an SMSF than in a retail or industry fund, Mr Townsend insisted, also rejecting any suggestions that there should be a prescribed minimum before starting an SMSF.
“A curious paradox here is that the very people who insist that each investor get tailored investment advice that meets their particular situation, needs and objectives, are the same ones who often want to prescribe a minimum amount, irrespective of the investor’s specifics,” Mr Townsend said.
“The minimum amount a person should have in their SMSF may be a factor of the amount of their assets outside super. The decision would be very different for someone with a million dollars invested outside super than for someone with just $100,000 outside super. So no figure could be set unless you knew their whole financial situation,” he added.
The reasoning behind prescribed minimums seems to revolve around set fees that eat away at a fund’s balance but this argument doesn’t take returns into account, he said.
“Would you rather have lower fees and lower return or higher fees and higher return? Because of the proportions, the upside is generally much greater than the downside, so the higher return more than compensates for the higher fees,” Mr Townsend stated.
A young person who leverages a small balance SMSF to buy property may be looking at a potential return of 300 per cent in 10 years so despite starting with a high fee proportion, their eventual return may be better than they could get through a public offer fund that can’t leverage, he said.
Trustees should be well advised before starting an SMSF and have a basic understanding of what it takes to be a trustee, “but that is in my view a lot less than the level of knowledge suggested by those trying to restrict the self-managed sector,” Mr Townsend said.
It is disappointing that ASIC’s solution is to create more paperwork for advisers via disclosure requirements, he added, in reference to this week’s proposal.
“Instead of spending time ensuring advisers tell all investors in SMSFs that they don’t have access to the statutory compensation scheme for theft or fraud, maybe ASIC could spend more time ensuring that this theft and fraud doesn’t occur in the first place,” Mr Townsend said.
