In a submission to Australian Securities and Investments Commission (ASIC) Consultation Paper 216: Advice on SMSFs: Specific disclosure requirements and SMSF costs, Industry Super Australia and the Australian Institute of Superannuation Trustees cited unpublished research by the University of New South Wales and the Sydney University of Technology.
The research paper by Arnold. B, Bateman. H, Ferguson. A and Raftery. A The cost, asset allocation and investment performance of self-managed superannuation funds in Australia showed that the cost to run an SMSF is even higher than that demonstrated by recent ASIC-commissioned Rice Warner research into the subject.
The submission said the research by Arnold et al is “by far” the most comprehensive research into SMSF costs because “it uses actual costs reported by SMSFs based on an Australian Taxation Office (ATO) dataset of more than 200,000 SMSF reports over the period 2008-2010 inclusive”.
The research found that the mean reported expenses of the sample SMSFs over the period 2008-2010 were 1.33 per cent of assets, or $7,299, according to the submission.
“The work confirms the advantages of scale with expenses of 14.03 per cent of assets or $3,126 reported for the smallest fund decile, and 0.80 per cent of assets or $19,253 for the largest fund decile,” said the submission.
“Only the very largest SMSFs would be cheaper than the most expensive accumulation industry fund,” said the submission.
The cost-to-earnings ratio for SMSFs with small account balances are “unacceptably high”, according to the submission.
“In addition, far too many SMSFs have what could only be described as a highly undiversified investment portfolio and a consequently high-risk investment strategy with real property investment being a leading factor,” said the submission.
