The Royal Commission that SMSFs want but may hate
Well the Government has finally given us a Royal Commission not just into the banks but all of the superannuation industry, excluding SMSFs (thank goodness). To last a year, I have built my list of SMSF desires and wants from the Royal Commission and to be fair a list of costs for SMSFs – many of which we will not see or discover until too late.
Why a Royal Commission into Financial Services?
The Governments press release says – “The Turnbull Government will establish a Royal Commission into the alleged misconduct of Australia’s banks and other financial services entities. …….. The Inquiry will consider the conduct of banks, insurers, financial services providers and superannuation funds (not including self-managed superannuation funds).”
SMSFs – what we want
- I would like to find out why it is so hard for SMSF Trustees to deal with banks, wealth managers and industry super funds unless you are putting money into them. They seem more inclined to be protecting their turf being the holy grail of mandated super and on-going fees of 1% or more. Can we get some testimony on this?
- Why do Industry and other super fund Trustees go out of their way to prevent the release of superannuation benefits to be rolled over to a SMSF? Is there a hidden manual for fund administrators to use when a member seeks to rollover to a SMSF? I would like advisers, accountants and administrators to jot down times when this has happened to a potential SMSF client and what excuses were made. Let’s see what the retail and industry super fund administrators have to say.
- SMSFs are continually talked down by the superannuation industry in terms of how expensive they are. But for all this talk SMSF fees are super transparent. Audit and administration fees, brokerage and advising fees are all paid directly by the Trustee. But when we look at non-SMSFs and fees, so prospective SMSF members can make a real comparison, a veil of charges hidden in the back of a PDS or on a website show that the following fees may be charged by a Trustee of a retail or industry super fund:
- The main types of fees are:
- Administration fees – General administration fees to cover the cost of operating the fund and keeping your super account.
- Investment fees – Fees for managing your investment which can vary for different investment options.
- Indirect costs – Costs paid by your super fund to external providers that affects the value of your investment. Typically these are costs paid to investment managers.
- Advice fees – Fees for personal advice provided about your super and other investments. Your adviser may also receive fees and commissions for certain investments they recommend to you and these are not included in product disclosure statements (PDS) by the super fund.
- Switching fees – Fees for changing your investment option within the fund.
- Buy/sell spread – This is a fee that you may pay every time you make a transaction, including making a contribution, switch and withdrawal. The fee covers some or all of the cost of transactions entered by the fund.
- Insurance premiums – The cost of insurance provided through your super fund. Many super funds have a set default insurance option. You can usually choose to lower or increase your level of cover based on your needs.
- Exit fees – A fee for leaving the fund.
- Activity-based fees – These fees are only charged if your super fund provides you with a particular service, for example, a family law split fee, where you’re charged to split your super following a separation and family law court order.
There needs to be a straight dollar cost of what it actually costs per member per superannuation interest. And nothing hidden, investment and extraneous costs to be included please.
- When it comes to superannuation lending why have the banks pulled out of the market?
The Downsides for SMSFs
- The Banks are a major investment for many SMSFs and any negative sentiment may impact the share price but more importantly the dividend flow. We saw ANZ reduce its dividend in 2017 and that impacted a significant number of SMSF Trustees who rely on dividend income to provide budgeted living expenses.
- The Banks and Industry super funds will use their technology power to reduce costs while increasing investment choice to make it highly attractive for younger super members to choose a commercial product. Highlight the Spaceship super fund which has $100M in super assets with an investment focus on technology and is transparent in its costs. More to come I would expect.
- The Advisory industry gets another shake up. This will directly impact SMSFs which are finding it hard to find good advisers due to the technical complexity and as a consequence of accountants not entering the financial licensing arena, even as an exempt licensee.
As we have seen on so many occasions in the past – enquiries such the Henry and Wallis enquiries have limited scope while a Royal Commission is a big beast which no one can guess where it will end up. It is good that SMSFs are outside its commission of inquiry but it will change the shape of the superannuation and banking landscape and as a major participant in that landscape SMSFs will have to be impacted.
One thing is for sure. It will be entertaining and I wonder if we will see any misconduct when banks and others have been dealing with SMSF Trustees.