Changing our approach to SMSFs

A recent ASIC Information Sheet release provided further guidance on giving self managed super fund advice. Whist this provides further clarity, there are questions raised about whether advisers should change the way they initiate SMSF conversations with their clients.

When ASIC released its updated tips for giving SMSF advice (Information Sheet 274) at the end of last year, there was a noticeable shift in determining the suitability of an SMSF for a client. Previously, the guidance was that an SMSF may need a balance of $500k or more to be competitive. Now, there’s recognition that clients with lower balances may be able to benefit from having a SMSF. There’s a wide range of factors that determine suitability, and super balance is only one of these factors.

We spoke with three SMSF experts about whether this shift in SMSF guidance should prompt a change in the way advisers initiate SMSF conversations with their clients.

Should advisers have an SMSF first mentality?

Meg Heffron, Managing Director of Heffron, says she believes that many advisers and individual investors have it backwards when considering whether or not they should have an SMSF.

“I’ve never really understood the rhetoric that you start with an industry or retail fund and you argue yourself into an SMSF, rather than the other way around,” Meg said. “Why would anyone choose to let someone else manage their retirement savings unless they had a really good reason for it? I’m not saying that everyone should have one, but it does seem odd to me that our default setting is always start with anything but an SMSF.”

Jo Hurley, General Manager of Growth at Class, agrees with this mentality of starting with an SMSF and working from there.

“I believe there should be a lot more modelling about going into an SMSF, investing in certain ways, and the contributions strategy to increase the value of the fund over a period of time,” Jo said. “It changes the nature of the advice conversation to one of intention, ownership, behaviour and priorities. Investors need to be able to consider the worth of having an SMSF. It’s more than a simple cost comparison.”

Assessing SMSF suitability and the value of advice

While Yvonne Chu, Head of Technical Services at Australian Unity Wealth, agrees that SMSFs can be a great option for many types of clients, she cautions that advisers still need to be mindful about meeting their obligations when recommending products.

“An SMSF should always be on the same level playing field when assessing which fund is most appropriate,” Yvonne said. “But rather than starting off with what a client should have, the conversation should start with understanding their client’s circumstances and objectives so the adviser can act in their client’s best interest by recommending the most appropriate product. If a client wants control of their investments, the ability to pool their family’s assets, investment flexibility, or the ability to purchase property, then that should be the catalyst for an adviser to assess whether an SMSF may be suitable for them.”

Meg adds that the name self-managed super fund is a misnomer, because it suggests that investors need to do everything themselves. She believes they should be called self-directed funds instead.

She said, “When I first started my SMSF in my late 20s, I made a lot of terrible investment decisions. I’ve had an adviser ever since. Even if you have the knowledge and expertise, it’s always helpful to have a sounding board. When you go through big life events, it’s brilliant to have someone who is less affected by that life event than you are. I decide what I want to do myself and what I want to outsource.”

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