News & Commentary

SMSFs get artistic licence 06 Aug 10

Some say investing is part art and part science.

This week saw a win for the artists over the hard-headed investment types.

For those artistic appreciation types with self-managed super funds at least part of their superannuation fund’s investment strategy has got a green light from the Prime Minister, Julia Gillard.

The review into the governance, efficiency, structure and operation of superannuation headed by Jeremy Cooper found – to the surprise of some industry groups – that the SMSF sector, by and large, was functioning well.

And while it found collectables or exotic assets were not material as a percentage of the assets held within SMSFs it recommended collectables and personal use assets be prohibited as an investment by an SMSF.

That provoked a noisy reaction from certain vested interests that probably threatened to make the issue material from a political perspective.

So art lovers can rest easy.

However, the recommendations of the Cooper Review are much more significant than the emotive issue around collectables and art.

For a start it gives SMSFs an official stamp of approval. Regulatory risk is ever present with any form of superannuation but SMSFs have been regularly targeted by other parts of the industry over many years with allegations of rorting and lack of control.

While the Cooper review certainly recommended areas that can be improved and tightened up it effectively gives support to the idea that SMSFs are a sound – if not preferred - savings structure for higher net wealth investors.

SMSFs fit neatly at one end of the choice architecture that underpins the Cooper Review framework. That is as super fund members exercise more choice they take on more individual responsibility for the outcomes. SMSFs, as a matter of policy, according to the Cooper Review, ought to be free, as much as possible from government intervention.

In some ways the most significant part of the Cooper Review for SMSFs is what was not recommended; for example the panel resisted the idea of mandating minimum fund sizes or licensing of trustees.

Where the focus ended up was on service providers. While SMSF members are clearly wanting control of their super fund most outsource at least some or all of the technical tasks of running an SMSF.

So the review panel sees the need for higher competency and advice standards by various service providers – be they auditors, financial advisers or administrators.

The SMSF sector is the fastest growing part of the superannuation industry yet in many ways it is the ultimate cottage industry with literally an army of service providers.

It is also, thanks to the flexibility to invest across the investment spectrum, arguably the most complex depending on how the fund is operated.

So helping SMSF trustees identify and get properly qualified advice and service will be an ongoing challenge.

So a national specialist accreditation scheme that has been proposed by groups like the Self-Managed Superannuation Fund Professionals Association of Australia (SPAA) makes good sense. Not every accountant or financial adviser is – or should be expected to be – expert on the complexities of setting up or running an SMSF. So specialist qualifications that help investors identify and have confidence in the skills of their service providers could fundamentally help raise the service delivery consistency and standard across the sector.

The sideshow that was the debate over art in SMSFs may be over but the real challenge remains for trustees of SMSFs to deliver the best possible outcome for their retirement.

* Written by Robin Bowerman, Head of Retail at Vanguard Investments Australia.
To receive this column by email each week, register with Smart Investing.

What can I do next?

• See Prices & Performance data for Vanguard funds
• Learn more about our Managed Funds up to $500,000
• Lean about our Managed Funds over $500,000
• Discover our Exchange Traded Funds
• Order or download a 2009 Index Chart
• Contact Client Services