SMSFs lowest in a decade

According to ATO historical figures, the number of SMSFs being set up is at the lowest level in a decade. So, what’s the reason for the slow-down? We asked three experts across our network.

According to our experts, policy has impacted the uptake of SMSFs.

“Political risk has meant that people are concerned over the future of control with respect to their own retirement, which is a fundamental reason why they used an SMSF in the first place,” says Scott Girdlestone, Director of Wealth Advisory.

Rebecca Rossi, Director of Business Advisory and Superannuation says she is not surprised by these figures.

“I think the barriers to entry – perceived or real – are deterring new Trustees. There is also a bit of change fatigue with the Super Reforms last year, the benefits of using an SMSF are perceived to be restrictive.”

Tricia Kleinig, Principal of Superannuation agrees, saying the general lack of confidence in superannuation comes down to the governments reform.

“It could simply be that SMSF practitioners have been so busy dealing with the Super reforms which commenced from 1 July, 2017, that there has been limited time to provide advice and prepare Statements of Advice for new SMSF entrants.”

Tricia says the policy of removing franking credit refunds will also have a significant impact on SMSFs, as the refund of franking credits has been a major attraction for clients when considering SMSFs over other types of superannuation.

“Self-Funded retirees are concerned about the removal of franking credit refunds and the impact this will have on their standard of living in retirement,” says Tricia.

Scott says other legislation to make property investments via Limited Recourse Borrowing Agreements (LRBAs) less desirable due to the gross value of the property being included in the total super balance cap, has affected the need for SMSF’s too.

“In particular, the housing downturn of the last twelve months has also impacted the desire for SMSFs, as many other asset classes are open to individuals via cheaper super funds.”

Rebecca Rossi agrees, saying the property market and uncertainty around ability to get finance for LRBAs would also have had an effect.

“If you want direct property in super, an SMSF is the only vehicle. If the market isn’t there, then the need for the SMSF also isn’t there,” says Rebecca.

Rebecca also say there are other desirable alternative avenues.

“Reduction of fees of platform products are a viable economical alternative to an SMSF if they don’t want to invest in direct property.”

Scott shares these sentiments saying the costs of SMSFs have gone up, not down due to additional fees for ASIC and the ATO.

“At the same time the ‘wrap’ or super fund admin platforms that allow clients to invest in direct shares, managed funds, annuities, Term Deposits and overseas shares have become very accessible, there are now many members who can buy Apple and Amazon directly within a public offer fund,” says Scott.

“Not only are they significantly cheaper than they were and rival industry funds, the tinvestment option offering has gotten significantly more diverse.”

Rossi says the removal of the accounts exemption has also had an effect.

“What this means is, even though accountants may give factual advice on SMSF establishment, generally the client will still ask their opinion as they see their Accountant as their trusted advisor, says Rebecca.

“If the accountant is not licensed then they need to introduce their client to someone who is licensed to give that advice. In most cases, the client may never have met this person before. Clients question why their accountant who knows their affairs inside and out for the last 15 years can’t provide them with an opinion.”

“If the Trustee doesn’t want ongoing financial advice, they don’t see the value in the Statement of Advice (SOA) for an SMSF establishment, rather they see it as a tick the box exercise. Setting up an SMSF is not a ‘tick the box exercise’ it’s a time of financial and Trustee liability commitment that Trustees need to be aware of. Setting up an SMSF is not a decision that people should make without doing their due diligence such as getting the proper advice and understanding their responsibilities as Trustees. “

Rebecca says It would be interesting to also see the number of SMSFs being wound up.

“I suspect this would have increased. I believe existing SMSF Trustees have lost trust in the system with all the changes, I keep getting the question… what’s next?’

So, are SMSFs still a good option? Scott says while the fad may be over, they are still a powerful instrument in the right circumstances.

“What we’re moving to now is realistically where SMSF’s should always have been, which is a concessionally taxed structure that allows individuals to align their business and wealth accumulation objectives. It’s an instrument which can achieve some fantastic outcomes for clients just the same as other tax instruments such as a trust or company or combination of all three can if used in an appropriate manner.”

“The fad is over with SMSF’s. They’re a valuable tax structure that in the right circumstances can be a very powerful instrument in tax effective wealth accumulation and estate planning strategies. Moreover, they can be a very useful structure for business owners to assist them in aligning their business and personal wealth objectives, says Scott.”