SMSF cost estimates ‘stale’, says ASIC as it starts review

The Australian Business Review

15 July 2020

James Kirby – Wealth Editor

The market regulator is set to dump highly controversial estimates that suggested self-managed super funds cost more than $13,000 a year to run and need 100 hours annually to manage.

ASIC chair James Shipton told a Senate committee on Wednesday the estimates were “stale” and the regulator was now actively reviewing the figures that have caused consternation across the SMSF industry.

The controversial claims first surfaced in an ASIC Fact Sheet last year designed to inform investors if SMSFs were suitable to their needs.

ASIC commissioner Danielle Press said the Fact Sheet was no longer being distributed by the regulator. The numbers, which are at least three times higher than many in the industry estimate, are still on display at ASIC’s Moneysmart website.

The move to review the figures comes after the ATO, which is the specific regulator for SMSFs, recently published statistics showing the operational expenses in SMSFs were at a median of $3923.

Aaron Dunn of Smarter SMSF has called the ASCI figures “grossly incorrect”.

Dunn suggests operating expenses for the vast majority of SMSFs are less than 1 per cent of total assets.

Ron Lesh, managing director of SMSF software administration provider BGL, branded ASIC’s estimate of $13,900 to run a fund and 100 hours to manage as “a manipulation of data”. Lesh told The Australian the number of hours it would take per year to run a fund was about 30.

The ASIC executives were responding to questions put forward by Jason Falinski, the Liberal member for Mackellar, NSW at a parliamentary joint committee on Corporations and Financial Services.

Though ASIC has been praised for efforts to protect consumers, especially in the area of property development where “off the plan” projects can prey on inexperienced retiree investors, the regulator has regularly sparked antagonism in the SMSF sector, which has more than a million members.

The true cost of running a DIY fund remains a contentious issue as bigger industry and retail funds continue to protect their industries from leakage to independent superannuation. But SMSF commencements have recently enjoyed a rebound.

Industry analysts suggest the ASIC figures were high because it used averages, which meant the complete outliers such as super funds that had tens of millions of dollars under management were included — the median funds under management for SMSFs in Australia is closer to $700,000.

ASIC’s high estimates would also appear to include costs such as insurance and financial advice, which are associated with running an investment portfolio but not in running an SMSF, which is simply a tax vehicle for private superannuation.

The regulator continues to state in its documentation that “on average, an SMSF will not perform as well as a professionally managed super fund” — a claim hotly debated among SMSF operators who explain it is impossible to determine generic figures for performance from the highly disparate population of SMSFs in the sector.

The regulator also tells investors inquiring about setting up funds “the returns you can expect from your disparate SMSF are determined by your balance”.

If your balance is more than $500,000, it is possible you might get returns that are competitive with APRA-regulated funds.