Over the next few posts I intend to delve into the Report further. For today, my comments on the SMSF Decalogue:
- Ultimate responsibility - "... SMSF members have effectively assumed sole responsibility for the adequacy of their retirement savings." I'm not sure that 'adequacy' is the right term. There are plenty of people running SMSFs who aren't convinced of the adequacy of their savings, but are constrained by, for example, the contribution caps. Would it not have been more appropriate to talk about taking sole responsibility for the management of their retirement savings?
- Freedom from intervention - no arguments on this one. When it comes to intervention, less is preferred to more in the SMSF environment.
- ... but not complete absence of intervention - the Report points out that it is the government that ultimately underwrites the risk of SMSF failure. Whilst that might be true, it must be remembered that many of those running their own SMSFs will have other resources that would be called on long before the social security system is asked to kick the tin. Notwithstanding this, access to tax concessions warrants intervention where the rules are broken.
- Service providers - interestingly, it's not just SMSF trustees that will be affected by the recommendations. There is a clear emphasis on raising the bar for service providers. Again, something I welcome.
- Gatekeeper on establishment - it's not clear how to reconcile this with the first point. And it's not clear why the industry now needs a gatekeeper. If it ain't broke ...
- Consistent treatment with APRA-regulated funds where appropriate - the 'level playing field' approach is the appropriate starting point. After all, super is super, and there must be common elements across the board. Splitting the system in two will add to complexity, which creates uncertainty, which diminishes confidence.
- Recognition of special risks in an SMSF environment - as with 5, how is this reconciled with the first point.
- Leverage - I will say more about the specific comments on leverage in later posts. What is curious here is that the Principle says that 'the Panel believes that there is room for leverage in SMSFs' but reading the Report suggests that leverage is only appropriate to cover short term liquidity issues. Which is correct?
- Compliance, rather than prudential, regulatory focus - no real argument here. Where members are trustees and vice versa, it is reasonable to assume that prudential management should almost take care of itself.
- Pursuit of excellence - I wonder if this is going to be like herding cats. How far can a 'dispersed and non-institutionalised' sector of the super industry be cajoled into adopting best practice (whatever that means), and at what point will the push back commence. Government and regulators have learnt that many of the assumptions about the way SMSFs had operated - eg the level of fees being paid - were simply wrong. Developing best practice is going to be a significant challenge, especially if incorrect assumption continue to be made.
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