Investors
P: 1800 658 404
View full details
Financial advisers
Contact your state account manager or our client services.
View full details
Shopping Centres
For leasing, casual leasing and brand solutions enquiries
Contact Us
Connect with us to stay up to date with news and updates.

LinkedIn

Don’t fall for these five SMSF myths


If you’re thinking of setting up an SMSF or already running one, you’ve probably heard these common SMSF myths. It’s time to set the record straight.

You could call it tall poppy syndrome. With SMSFs now the largest and fastest growing sector in Australian super, they’ve attracted plenty of commentary from the media and super industry insiders, some of it wide of the mark. Now it’s time to sort out the myths from the reality.

Myth 1: SMSFs don’t diversify

The reality: SMSFs are often just part of a larger strategy

It’s often said that SMSFs aren’t diversified, at least in comparison to the giant industry and retail funds. And at first glance the data seems to bear this out. According to the Australian Taxation Office (ATO), in March 2015 SMSF portfolios were highly concentrated in Australian shares and cash, with few direct international investments.

Yet this is only part of the picture. Leaving aside the large proportion of SMSF portfolios held in managed funds (the vehicle of choice for SMSF trustees seeking broader diversification, especially offshore), we know that SMSF trustees typically have 50% or more of their wealth outside their SMSF. Which means their SMSF holdings are often only part of a larger and more diversified financial strategy.

Myth 2: SMSFs lack strong supervision

The reality: SMSF members are actively engaged in managing their money

Given the strict prudential rules the big APRA-regulated funds have to follow, it’s not surprising some fund managers and commentators think SMSFs should be more tightly supervised. (Could it be that they secretly envy the flexibility SMSF trustees enjoy?)

But this criticism misses the point. Those prudential rules are there to ensure fund trustees keep their financial promises to their members — not really a problem when the members and the trustees are one and the same.

The truth is that most SMSF members are actively engaged with managing their own investments day-to-day. So administrative flexibility works for them, not against them.

Myth 3: SMSFs fail on compliance

The reality: Despite hugely complex rules, most SMSFs are fully compliant

Investment professionals sometimes suggest SMSF trustees lack the skills to meet their compliance responsibilities. This is one of the easiest myths to disprove.

ATO statistics reveal that fewer than 2% of SMSFs were reported for compliance breaches in 2014. This is not surprising when you consider the high standard of advice now available to trustees from accountants, advisers and specialist SMSF administrators.

Myth 4: SMSFs take dangerous risks

The reality: SMSF trustees are generally conservative

It’s true that SMSF trustees aren’t subject to the same investment checks and balances as the big APRA-regulated funds. But while that could give them the freedom to splurge on riskier investments, research shows the opposite is true.

For example, according to the September 2014 Multiport SMSF Investment Patterns Survey, 51% of SMSF direct Australian shareholdings were in the ASX top 10 shares. That suggests SMSFs are more conservative than their regulated counterparts, not less so.

Myth 5: SMSF members lack legal protection from fraud

The reality: Many SMSF investments are protected (but not all)

The collapse of Trio Capital in 2009 highlighted a key difference between SMSFs and APRA-regulated funds. In that case, industry and retail funds were able to seek government compensation for fraud, while SMSFs could not.

But the situation is less one-sided than it seems. ATO figures show most SMSF investments are in assets that offer at least some protection from fraud and theft. That includes cash investments (usually government guaranteed up to $250,000), cash transactions (covered by the ePayment Code), direct share investments (covered by the National Guarantee Fund) and property (less exposed to theft and fraud).

Which means that, as long as they invest with care, SMSF members can rest easy.

About the author
David Busoli serves the role of SMSF Specialist Mentor. He has been practicing in financial services since 1979 and has extensive experience in financial planning, insurance, tax planning, investment advice, stock broking, and mortgage broking. He has specialised in SMSFs since 1995 with particular emphasis on administration, compliance, strategic planning and education. He is a regular SMSF speaker and presenter.
Taking your SMSF to the next level
Download now

Sign up to our newsletter!

Receive regular insights and marketing communications including a weekly update of tending news and market insights that are tailored for SMSF trustees and investors.
Sign me up
AMP's Australian operations are bound by the current Australian privacy legislation which outlines how organisations should manage and use personal information collected and held about their customers. AMP Privacy Policy

Thanks for subscribing

Thank you for subscribing to our weekly highlights newsletter.
Your privacy is important to AMP Capital and we are bound by the current Australian privacy legislation. View our privacy policy
Submit and close

Sign up to our newsletter!

Receive regular insights and marketing communications including a weekly update of tending news and market insights that are tailored for SMSF trustees and investors.
AMP's Australian operations are bound by the current Australian privacy legislation which outlines how organisations should manage and use personal information collected and held about their customers. AMP Privacy Policy
Sign me up Not right now. Thanks

Sign up to our newsletter!

Receive regular insights and marketing communications including a weekly update of tending news and market insights that are tailored for SMSF trustees and investors.
AMP's Australian operations are bound by the current Australian privacy legislation which outlines how organisations should manage and use personal information collected and held about their customers. AMP Privacy Policy
Sign me up