26 September 2023

ASIC takes interest in self-managed super

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The Australian Securities and Investments Commission (ASIC) has warned investors considering setting up their own self-managed superannuation funds (SMSFs) to be aware of the potential downsides.

ASIC Commissioner Danielle Press said the Commission had identified eight ‘red flag’ situations which, together or in part, would make it extremely unlikely for an investor to gain any advantage from using SMSFs to create and safeguard their intended retirement lifestyle.

Ms Press said that while ASIC believed consumers were all too well aware of the potential benefits that might stem from using an SMSF, they were not equally alive to the considerable risks and responsibilities that came with the deal.

“SMSFs may be an attractive option for investors wanting more control over their superannuation investment strategy, but it requires real skill, care and diligence to manage your own superannuation,” Ms Press said.

“SMSFs are not for everyone simply because not everyone can meet the significant time, costs, risks and obligations associated with establishing and running one.”

She said ASIC had previously tracked and analysed member experiences in using an SMSF and whether advice providers were complying with the law when providing personal advice about setting up an SMSF.

“Our research found that SMSFs are not suitable for members with a low fund balance, particularly where they have limited ability to make future contributions,” Ms Press said.

“This is important because consumers starting off with a low balance need to be aware that they may not be in a better financial position in the future by holding an SMSF compared with investing in an Australian Prudential Regulation Authority-regulated fund.”

She said the research had also found that SMSFs were not an appropriate investment option for people who wanted a simple superannuation solution, particularly if they had a low level of financial literacy or limited time to manage their own financial affairs.

“On average, SMSF trustees spend more than 100 hours a year managing their funds,” Ms Press said.

“As the trustees of their own fund, SMSF investors must remember that they are responsible for their fund’s compliance with the law, even if they pay a professional to help.”

ASIC has published two reports relating to the market characteristics of SMSFs and member experiences.

Its 127-page report on the SMSF market can be accessed at this PS News link, and the 69-page report on members’ experiences at this link.

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