ASIC abandons $500,000 SMSF threshold

Media Releases

ASIC abandons $500,000 SMSF threshold

SMSF Association Media Release

ASIC’s decision to remove $500,000 as an indicator of the “appropriateness of advice” to establish a self-managed super fund (SMSF) has been welcomed by the SMSF Association.

In its latest updates on guidance on SMSF advice, released today, the regulator has opted not to nominate a minimum threshold. It does point out, however, that fund expenses are proportionally higher, and net returns lower, for lower balance funds.

SMSF Association Deputy CEO / Director of Policy & Education, Peter Burgess, says: “It’s a significant breakthrough for our sector to have that $500,000 threshold removed.

“Earlier this year, and in light of fresh evidence in a University of Adelaide research report on the performance of SMSFs, the Association wrote to ASIC requesting that it review its guidance for Australian Financial Services Licensees (and their representatives) who provide advice to retail clients about SMSFs.

“In particular, references in ASIC INFO 206 to SMSFs with balances below $500,000 as having lower investment returns and will often be uncompetitive compared with APRA-regulated funds was at odds with the findings of the University of Adelaide research conducted on a sizeable proportion of the SMSF sector.

“It’s worth repeating that the University of Adelaide research found no material differences in performance patterns for SMSFs between $200,000 and $500,000, so the notion that smaller SMSFs in this range deliver materially lower investment, on average, than larger SMSFs in this range is not supported by the research. The research shows that a more appropriate threshold is $200,000.

“So, it’s extremely pleasing that the regulator has taken heed of this research and our representations on this issue and has removed references to the $500,000 threshold.”

Burgess says that although the ASIC guidance no longer refers to a threshold balance, it’s important for advice providers to remember that the research found SMSFs with balances with less than $200,000 are likely to achieve considerably lower net investment returns compared with funds with balances of $200,000 or more.

“Therefore, unless a large contribution will be made into the SMSF within a short timeframe (such as within a few months) after the fund is set up, it’s unlikely starting an SMSF with a balance of less than $200,000 is consistent with your client’s best interests.”

Burgess adds that ASIC latest guidance highlighted SMSF risks and the importance of seeking professional advice. “The Association is very pleased to see such a prominent reference to the need for financial advisers to have specialist knowledge about SMSFs before providing advice and the important need for advisers to maintain this knowledge and expertise over time.”