ASIC sounds warning bell on SMSFs

The success of the rapidly growing self-managed superannuation sector could be jeopardised by increasing numbers of newcomers who are less financially sophisticated, former Australian Securities and Investments Commission deputy chairman Jeremy Cooper is expected to warn today.

These concerns were echoed by the current chairman Greg Medcraft at ASIC’s annual two-day forum in Sydney yesterday.

Both warnings come as Finance Minister Penny Wong failed to deny the Government will target super concessions in this year’s budget, while speaking with ABC Radio this morning.

The Australian Financial Review reports Cooper, who chaired the federal government’s superannuation review and is now chairman of Challenger Financial Services, will make a speech today on the topic.

Cooper will say the SMSF sector is currently successful because the trustees are usually older and have professional or small business backgrounds.

He will warn if increasing numbers of new, often younger, people start creating SMSFs, the industry will suffer. The comments are expected to come at the ASIC forum in Sydney today.

“As the size of the self-managed super fund population increases then its characteristics will become indistinguishable from the general populations,” he is expected to say.

Yesterday, Medcraft said at the forum the growth of the DIY funds sector, particularly super schemes, will be the biggest challenge to face regulators.

“I regard the growth of super as frankly the greatest challenge in the next decade, particularly self-managed super, because at the end of the day if it’s not in cash it goes into debt and equity products,” he said.

The value of DIY funds is expected to reach $3 trillion in the next decade and the SMSF sector is currently worth $470 billion.

The SMSF Professionals Association of Australia technical director Peter Burgess told SmartCompany more younger people are now creating SMSFs, but they are not necessarily uninformed.

“It’s true there are younger people turning to SMSFs, but this doesn’t say that they are not sophisticated. It’s clear younger people are more engaged with their super than people of older generations were at the same time of their lives.

“There is now more specialist advice available to these people than in years gone by and there have been more rules around licensing of financial advisors,” he says.

Burgess says the Australian Taxation Office provides publications on every step of the SMSF process.

“The ATO has some good publications available on its website. There is one talking about thinking about SMSFs, making you question if it is in fact the right option for you.”

He says there is now a lot more “hand holding” in the industry than previously as SMSF holders are helped throughout the establishment process and often warned when a possible breach could occur.

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