Submission to the Australian Financial System Inquiry 2014

See the submission by clicking here. The website for the FSI is here. The main points covered:

  • Governance around the SMSF sector is loose. There is considerable focus around the ease of setting up and managing an SMSF. This puts systemic risk into the sector, which many Trustees and Stakeholders do not fully understand. Despite these risks, the funds themselves can be technically fully compliant in all respects
  • A proliferation of products and providers has grown around the SMSF industry which makes governance and compliance easy. These (not necessarily explicitly) remove risk and recourse from Trustees (or those who control the relevant Company if a Corporate Trustee is used). With this, there is also no clear delineation between the interests of product providers and stakeholders
  • The system allows investment mandates to be easily set, with a wide range of investments available and compliant. It places few restrictions on the investment process. This is especially dangerous for SMSFs of low notional value
  • There is a lack of benchmarking and performance attribution for SMSFs. There is little or no requirement for diversification, and little practical focus on risk. Trustees have no obligation to analyse or modify their performance
  • All the above (anecdotally) points towards systemic weakness. This ultimately means that the Government will end up with the financial and social burden if inadequate investment returns (or worse!!) are generated by SMSFs

From these concerns, are suggestions around a governance framework, investment guidelines, benchmarking and ongoing monitoring and management of SMSFs. These are ideas and points for further discussion and investigation, rather than hard recommendations.

No comments yet.

Leave a Reply