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compensation scheme that applies to large super
funds regulated by the Australian Prudential
Regulation Authority (APRA). Many SMSF trustees
lost millions in the Trio Capital fraud, whereas
a number of APRA funds were able to apply to
the government for compensation. However,
the SMSF Professionals’ Association of Australia
(SPAA) has pointed out that the minister has
not approved all claims due to fraud and SMSFs
still have access to the courts. Despite this, legal
action can be expensive and there hwas to be
someone with assets available for legal action to
have any chance of success.
FEES, COSTS AND FUND SIZE
Fees and costs remain a major determinant
of investment outcomes. It is also an issue of
ongoing debate when attempting to measure the
value of setting up an SMSF.
Initial costs range from $916 to $2035, while
annual compliance and administration costs can
add a further $4131 to $10,990, according to a
Rice Warner analysis conducted on behalf of ASIC.
The actuary found that some SMSFs with account
balances of just $100,000 to $150,000 could be
competitive with retail funds, while SMSFs with
more than $200,000 could be competitive with
both retail and industry funds, if trustees carry out
broader investment administration duties.
However, Shadforth’s Bedding says SMSFs
should have at least $500,000 to be truly
competitive against large pooled super funds – a
point also backed up by Rice Warner, which said
SMSFs of this size could obtain similar or cheaper
fees than retail and industry funds, as well as
cater to more complex investment arrangements.
“Anyone that’s got a small amount of money
in a self-managed super fund and is not going to
grow that pretty dramatically, pretty quickly –
you have to question why they’ve got one,”
It remains a point of concern given that 23.3
per cent of SMSFs held less than $200,000 in
2011/12, although that represented a reduction
from 28.2 per cent in 2007/08, according to
SPAA director of education and professional
standards, Graeme Colley, says SMSFs are not
for small investors, although he disagrees that a
minimum fund size should be mandated – an issue
raised by ASIC in its recent consultation paper.
“It’s difficult to have a statutory minimum
because of the timing of some of these
contributions,” Colley says. “If you’re going to
have a statutory minimum for self-managed
funds then maybe you should have a statutory
maximum for some of the other superannuation
funds, because a self-managed fund might be the
best cost option.”
The cost of insurance is another issue. Many
APRA-regulated funds are able to use their size
to negotiate lower-cost group insurance, which
often applies automatically to investors enrolled
through an employer-sponsored plan.
AMP SMSF technical expert Phil LaGreca
says many SMSFs still don’t have adequate
insurance arrangements, although the situation
is improving. A large number of investors are also
choosing to partially roll-out their super from an
APRA-regulated fund when setting up an SMSF in
order to retain their group life insurance.
“That’s simply because there is no portability in
insurance and that is an insurance industry issue,”
WHERE THE MONEY FLOWS
The investment strategies of SMSF trustees
differ significantly to those of large super funds,
although ATO data suggests the sectors have
posted similar investment returns over time.
SMSFs generally have more money invested
in cash and fixed interest than large super funds
(32.5 per cent versus 23 per cent), as well as less
exposure to international shares (0.3 per cent
versus 23 per cent). Cash and Australian shares
usually form the bulk of SMSF portfolios, while
more esoteric assets such as collectibles form
just 0.16 per cent and unlisted shares and other
investments just 4 per cent.
Although ASIC has raised concerns about
the inappropriate spruiking of geared property
investments, the numbers remain relatively low.
Total borrowings comprise just 3.7 per cent of
total SMSF assets, according to SPAA. However,
for a small minority of SMSFs, there is relatively
high exposure to both property and borrowings.
While many SMSFs do not rely on financial
planners or other experts for investment advice,
Colley says it is a myth that trustees have no idea
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