Australia’s big retail high fee superannuation funds have come up with yet another outrageous suggestion to protect their declining market share.
This time, according to press reports, the big funds want self-managed funds to be regulated not just by the Australian Tax Office but also by APRA as well. The big funds, via the Financial Services Council, are presenting to David Murray’s financial services inquiry and want to make it harder and more expensive to run a self-managed fund so they can curb the exodus from their funds.
The latest submission is consistent with previous unsuccessful road blocks they have tried to put in front of self-managed funds.
It shows that the big funds still have a deep cultural problem. They should be seeing self-managed funds as customers to be nurtured, not attacked via new layers of regulation.
In fact the incredible diversity of self-managed funds lowers their risk to the superannuation movement. If anything, the biggest risk in superannuation is not self-managed funds but rather that a big fund covering millions of Australians will go off the rails.
The big funds appear to be blissfully unaware that we have a government that is looking to reduce regulation rather than increase it.
Self-managed funds have boomed because the big institutions charged fees that were far too high. Sensible savers for retirement voted with their feet and self-managed funds now represent just under one third of the superannuation market and half the funds that are in pension mode.
Instead of changing their ways to become competitive, over the last decade or so the big funds have regularly run false smear campaigns against self-managed funds.
The Grattan Institute has shown that Australia’s big funds charge fees that are far too high (Yes, super is too expensive – so ban the skim, April 28).
The former superannuation fund minster, Arthur Sinodinos, who has been found to be gullible in other fields, tried to give the big funds freedom to continue to levy high fees. Thankfully his replacement, Finance Minister Mathias Cormann has mothballed the idea.
The big funds say there is a risk that self-managed funds will be put in jeopardy by borrowing to enter the real estate market. That is a risk but at the moment only a small proportion of self-managed funds enter the leveraged space. But if the Reserve Bank or Australian Tax Office believes that housing investment by superannuation funds is getting out of hand then it is easily stopped by going back to the old regulations which prevented superannuation funds borrowing or, alternatively, making it harder for banks to lend to super funds.
It does not need a new regulator. I am sure David Murray is too smart to be taken in by them and will realise what their agenda is.
But in the unlikely event that David’s banking background causes him to stumble in this area, it will be the job of Finance Minister Mathias Cormann and the minister to reduce regulation (my title) Bruce Billson to make sure regulation is not increased, by appointing two regulators over self-managed funds.
The Self Managed Super Funds Owners’ Alliance is obviously biased but makes important points for David Murray plus Messrs Cormann and Billson.
The SMFS Alliance says that the big retail funds hold Australians' superannuation savings in trust with an implied promise they will be safeguarded and nurtured.
With SMSFs, there is no such issue as the trustees and beneficiaries of SMSFs are the same people. They can be relied upon to act in their own best interests.
This fundamental difference was recognised by both the Wallis and Cooper inquiries and in Treasury’s recent submission to David Murray.
Treasury's submission said that because SMSF risks were carried entirely by the beneficiaries, there should be no regulatory assurance for them and compliance oversight of self-managed funds should continue to reside with the ATO.
SMSFs invest 99 per cent of their assets in Australia, avoiding exchange rate and sovereign risk, while APRA regulated funds invest 30 per cent of their assets offshore.
SMSFs are inherently conservative and risk averse, holding 28 per cent of their assets in cash and with 32 per cent invested in listed shares, mainly in blue chips that deliver reliable dividends.
The SMSF owners’ alliance says that from time to time, commentators criticise SMSFs for being reluctant to take on risk and chase higher returns, yet their performance is consistently equal to or better than the professionally managed APRA funds.