THE SOAPBOX: Defending decent SMSF trustees

Based on the bagging that DIY super trustees have received in the media recently from government and certain sectors of the superannuation industry, you may be thinking that taking control of your retirement savings via a self-managed super fund (SMSF) is akin to a criminal act.

Don’t be fooled by the bluster and bullying of certain players in the super industry worried about the billions of dollars pouring out of large funds and into the hands of individual trustees running SMSFs.

Becoming a DIY super trustee means joining a select and very influential group of Australians. Just under 800,000 Australians (or nearly 4 per cent of Australia’s population), controls more than 30 per cent of the $1 trillion held in superannuation accounts, according to figures released by the Australian Prudential Regulation Authority (APRA) and the ATO. That’s a big deal!

Defying the lobbyists and doomsdayers

In the latest figures released by APRA, the money held in SMSFs grew in the three months to March 2009, while every other super fund sector shrank — the money held in retail and industry super funds fell, and the money held in public sector and corporate super funds also dropped.

Self-managed super funds have enjoyed spectacular growth in the past decade or so. In 1998, SMSF trustees controlled just over 10 per cent of Australia’s super wealth, according to APRA and ATO statistics. Five years later, in 2003, SMSFs held 20 per cent of Australia’s superannuation money. Fast forward to late 2009, and the SMSF sector is now the leading category of super fund in Australia.

The rest of the superannuation industry can’t quite accept the spectacular growth of the SMSF sector, warning Australians of unscrupulous individuals who want to make money from redirecting your super savings to a SMSF. And such SMSF scammers do exist, but the majority of individuals working in the SMSF sector are legitimate service providers.

If you have $200,000 or more (and sometimes less) in super savings then a SMSF is an option but certainly not the only option and not necessarily the best option, depending on your personal circumstances.

Although not everyone who has a SMSF should be running a SMSF (although such a statement equally applies to other types of super funds or companies or businesses), the overwhelming majority of SMSF trustees are decent, conscientious and law abiding citizens.

Who is controlling the non-SMSF super market?

Even so, the Australian Government is nervous that so much of Australia’s retirement security rests in the hands of so few Australians. Hang on! Apart from the 400,000 or so SMSFs holding a one-third share of all super money, most of the remaining two-thirds of super money is held in fewer than 500 large funds, which is controlled by fewer than 5,000 trustees and invested by roughly 130 investment managers. Shouldn’t the government be similarly concerned that the retirement savings of the remaining 20 million or so Australians is in the hands of so few?

Even more concerning is that some of the largest super funds in Australia are inter-related through the use of common fund managers and asset consultants, and many of the 160-odd retail super funds available are offered via a handful of large organisations. Ah, but the discussion of potential ‘trustee’ risk and ‘fund manager’ risk associated with large funds just has to be shelved for a different article, or perhaps the closeness of the industry is something that the latest super review should be examining (see article: Top ten problems with our super system, and how we can fix them).

Push for minimum education requirements for SMSF trustees

An important difference between running a SMSF and running a large super fund, however, is that the trustees of large super funds (such as industry funds and retail funds) are licensed by APRA. APRA has imposed prudential requirements on trustees of large funds, which aren’t generally imposed on SMSF trustees — such as the requirement to regularly report to APRA how the super fund manages risk. In many cases, large funds are also licensed by the Australian Securities & Investments Commission (ASIC). A super fund requires an Australian Financial Services licence when the fund offers financial products or financial advice.

Lack of prudential supervision isn’t the only concern for the government when reviewing the SMSF sector. The government also believes that many SMSF trustees arrange for accountants or financial advisers to set up their fund, and then arrange for these service providers to run the fund on the trustee’s behalf without much involvement by the fund trustees. In other words, the government believes that too many SMSF trustees aren’t taking such an important role seriously enough.

Since July 2007, the government requires a trustee declaration for new SMSF trustees. Any new SMSF trustee must sign a declaration within 21 days of becoming a trustee stating that he or she is responsible for ensuring the fund complies with the Superannuation Industry (Supervision) Act 1993 and other relevant legislation.

The Association of Superannuation Funds of Australia (ASFA) believes the SMSF trustee declaration is not a high enough barrier to entry. ASFA has called for SMSF trustees to be licensed, which is the most ridiculous policy call from an organisation supposedly representing the entire super industry (including SMSF trustees). My views on this issue are no secret — licensing SMSF trustees is overkill. I compare such a suggestion to demanding car drivers to be licensed as semi-trailer drivers. You want them to be able to drive but they don’t need to be able to handle heavy vehicles.

The call for a licence is simply an attempt by the large funds to control the market, and the larger industry would be wise to focus their attention on WHY individuals are moving their super money into the SMSF structure.

Decent SMSF trustees must not be complacent. In May 2009, the then Minister for Superannuation and Corporate Law (and now Assistant Treasurer), Senator Nick Sherry reminded Australians that the government had recently undertaken a comprehensive review of the SMSF sector, and “would shortly progress reforms to boost the standard of trustee education”.

If you run your own super fund, then be prepared for new rules that may require you to undertake some type of short course. If you want to have a say about what this course is going to look like, or if you disagree with the introduction of minimum education requirements, then make sure you write a submission to the current ‘review into the governance, efficiency, structure and operation of Australia’s superannuation system’, chaired by Jeremy Cooper, formerly of ASIC. The review will be accepting submissions from the public and the super industry in the second half of 2009.

You can find the review’s terms of reference at the bottom of the article: Top ten problems with our super system, and how we can fix them.

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