Call for SMSFs to face super performance test
Self-managed superannuation funds (SMSFs) should be subjected to the same performance test as large funds regulated by the Australian Prudential Regulation Authority (APRA).
Former Federal financial services minister and current chair of TWUSuper, Nick Sherry has questioned why some of the best-performing APRA-regulated funds have been targeted by the performance test while SMSFs have escaped similar scrutiny.
Sherry went so far as to question why MySuper products were targeted by the Your Future, Your Super (YFYS) performance test ahead of choice products and SMSFs.
“…this is a political observation, why did we pick on the best-performing funds first?” Sherry told a Financial Newswire roundtable. “It just seems to me ridiculous that, prima facie, the best-performing funds with the best-performing defaults were prioritised ahead of the so-called choice offerings which on the available evidence are far worse performing and then what happens to the SMSF sector which seems to have been forgotten in the entire exercise.”
“So I question the priority of starting with the best-performing funds first when, you know, I would argue under-performing choice and SMSFs should have been tackled first.”
“I can think of very creative ways in which it can be done applying a performance test to SMSFs, Sherry said. “You can have a set of criteria and relative standards.”
Pressed on the issue of the trustees of SMSFs managing their own funds, he said that more often than not they were being managed by advisers and accounants.
“While the theory is that you are managing your SMSF accountants and advisers are now largely managing SMSFs,” he said. “It has become a mass industry. I have never accepted the argument that SMSF trustees are actually managing their entity.”
“I think many people in SMSF sector see it as a form of wealth creation to pass on to their kids and I think it needs a greater level of rigour applied particularly to the so-called advisers and some reasonable, simple standards applied to measure and benchmark an SMSF against the APRA-regulated sector,” Sherry said.
NGS Super acting chief executive, Natalie Previtera said she agreed that there was a need for some form of performance test to be applied to SMSFs, “if only to raise the level of financial awareness of people”.
“And there is an overall member outcomes argument here as well because we see members leaving the fund and losing not only insurance but not understanding what they are going over to,” she said.
“We represent a significant proportion of women and I won’t be speaking out of turn to say much of the time it could be their husband influencing them to go into one of these funds and it could be the result of their accountant or someone they’ve met at the golf course,” Previtera said.
NESS Super chief executive, Paul Cahill pointed out that SMSFs received the same tax concessions as APRA-regulated funds and should therefore expect the same treatment with respect to a performance test.
“So, in terms of equity, the previous Government ran the ball pretty hard at the industry funds sector, and I understand that, but in terms of fairness across the playing field SMSFs should be subject to the same set of principles on performance as well.”
“They receive the tax-deductibility, they receive the benefits, they receive all the goodies that go with it but they don’t have the same rules applied to them that apply to us which to me seems an inequitable situation.”
Given SMSFs don’t cater & market to the masses for SGC mandates by the trillions $$$$$ or sponsor corporate boxes for their trustees to use at the MCG.
I think Industry Funds are chalk and cheese from SMSF.
Surely given the ever expanding ISA Fund accumulation they can one day just let people choose to run their own SMSF if they want.
The ISA Funds communist style control everything and control everyone approach is so, so tired. Boring.
Of course Sherry assumes that industry funds outperformed SMSFS this year. Hate to disappoint him but because SMSFs aren’t slavishly captured by MySuper allocation theory, many SMSFs thrashed the Industry Funds over the past 12 months. Also, have you had a good look at the Hostplus property fund that SMSFs can invest in now?
Because default super is where we all start. Everything else is a choice for us as members. The previous Government was looking to protect people who made no decision about their investment option.
SMSFs and Choice options in large APRA funds are different as members have made their own choice based on their own circumstances.
An older person choosing a cash option will usually underperform, but is making a pretty common decision.
Former Labor Minister Sherry is showing Labor is all about super wars, rather than stopping them.
This is an excellent idea. It would be absolutely hilarious to provide the evidence which shows SMSFs absolutely thrashing the highly paid Fund Managers!……
The reason this will never happen is the same reason SMSFs will never be subject to the APRA performance test. There is no accurate performance measurement for most SMSFs. The majority of SMSF trustees have a vastly overinflated perception of their fund’s performance and their own prowess. That’s because they are selective about which investments to measure, don’t properly distinguish between contributions and earnings, overlook a lot of costs, and don’t use the correct mathematical techniques to annualise. The real performance of most SMSFs is completely unknown.
They may have an over inflated view of their investment skills, but regular comparisons show they keep doing well. We’ve learnt to listen to the experts on COVID and climate change, and should do the same in many other areas such as detailed research into investment performance of SMSFs. Making sure to judge apples with apples, unlike what was attempted a few years ago where the ATO and APRA returns were compared despite having different items included.