Industry super fund warning on SMSF costs
Industry Super Australia (ISA) has warned the Australian Securities and Investments Commission (ASIC) that the costs of setting up a self-managed superannuation fund (SMSF) are higher than is generally believed.
The warning is contained in a submission compiled by the ISA and the Australian Institute of Superannuation Trustees (AIST) to the ASIC review of the SMSF sector.
In that submission, the two organisations point to research which they say suggests the costs of SMSF establishment are higher than previously believed and which they say suggests a need for tighter regulation of the sector.
ISA chief economist Dr Sacha Vidler said setting up an SMSF was probably one of the most important financial decisions a person would make in their lifetime and required careful consideration.
"People need to make sure setting up an SMSF is the right thing for them after considering things like set-up and exit costs, loss of insurance coverage for theft and fraud, and disclosure of costs and benefits compared to the fund they're already in," he said.
"The advice people receive is critical to helping them make sure, and should be in their interest - and not the interest of the adviser or accountant."
"There should be obligations on financial planners and accountants that ensure that people are making informed decisions," Vidler said.
The ISA and AIST submission cites Australian Taxation Office data as the basis for its claim that the cost of SMSF establishment could be higher than previously believed, saying that in 2010 one in five SMSFs had assets of less than $100,000.
It said the smallest funds, with assets of up to $50,000, had costs on average of over 7 per cent a year, while those with funds of between $50,000 and $100,000 had costs on average of 3.7 per cent - "much higher than a major not-for-profit fund with costs of less than 1 per cent a year".
"Many SMSFs are established with small accounts, and their cost-to-earnings ratio are unacceptably high, especially when compared to industry and other not-for-profit funds," Vidler said.
Originally published in SMSF Essentials.
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