ASIC urges consumers to question whether SMSFs are right for them

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ASIC has warned Australian investors considering establishing
their own self-managed superannuation fund (SMSF) to be particularly aware of
the potential downside to such a strategy, and that many Australians set up
SMSFs that are inappropriate for their circumstances.

ASIC has
identified eight ‘red flag’ situations which, together or in part, would make
it extremely unlikely for an investor to gain any advantage from using SMSFs to
create and safeguard their intended retirement lifestyle.

Australian Tax
Office figures reveal that as at 30 June 2019, there were 599,678 SMSFs in
Australia holding nearly $748 billion in assets, making total assets held in
SMSFs larger than those in either industry ($719 billion) or retail ($626
billion) funds.

Commissioner Danielle Press said, ‘ASIC believes that consumers are all too
well aware of the potential benefits that might stem from using a SMSF but are
not equally alive to the considerable risks and responsibilities that come with
the deal.

‘SMSFs may be
an attractive option for investors wanting more control over their
superannuation investment strategy, but it requires real skill, care and
diligence to manage your own superannuation. SMSFs are not for everyone simply
because not everyone can meet the significant time, costs, risks and
obligations associated with establishing and running one.’

previously tracked and analysed member experiences in using an SMSF, and
whether advice providers were complying with the law when providing personal
advice about setting up an SMSF. The research identified the ‘red flag’
indicators that suggested when an SMSF may not be appropriate for an investor.

‘Our research
found that SMSFs are not suitable for members with a low fund balance,
particularly where they have limited ability to make future contributions. This
is important because consumers starting off with a low balance need to be aware
that they may not be in a better financial position in the future by holding an
SMSF compared with investing in an APRA-regulated fund,’ Ms Press said.

There is a
clear correlation between the size of an SMSF and the returns enjoyed by
members. The Productivity Commission, in its report on Superannuation:
Assessing efficiency and competitiveness
 identified that
SMSFs with balances below $500,000 produce lower returns on average, after
expenses and tax, when compared to industry and retail super funds.

research also found that SMSFs are not an appropriate investment option for
people who want a simple superannuation solution, particularly if they have a
low level of financial literacy or limited time to manage their own financial
affairs. On average, SMSF trustees spend more than 100 hours a year managing
their SMSF.

‘Where people
have limited investment decision-making experience or prefer to delegate
decision-making to someone else, they should carefully consider if an SMSF is
right for them. As the trustees of their own fund, SMSF investors must remember
that they are responsible for their fund’s compliance with the law, even if
they pay a professional to help,’ Ms Press said.

To reinforce
these important considerations and to help members make more informed
decisions, ASIC has released a factsheet, SMSFs: Are they for
for consumers and SMSF trustees deciding or reassessing if an
SMSF is appropriate for them. The fact sheet will also be a useful resource for
financial advisers when providing personal advice on SMSFs.

The fact sheet will be sent to all newly registered SMSF trustees as a pilot in November, when they register with and elect to be regulated by the ATO. ASIC will then survey a number of the SMSFs to assess the usefulness of the fact sheet.

Download the fact sheet: Self-managed superannuation funds: Are they for you? (PDF 1 MB)

ASIC Media Release 19-277MR