7 Reasons why ASIC’s $200,000 minimum for an SMSF is not in the client’s best interest
Special Counsel – Estate Planning & Superannuation
While there are a number of useful features of ASIC’s new guidance papers on SMSF advice (Information Sheets 205 and 206), comments relating to the preferred minimum for an SMSF of $200,000 are not among them.
We quickly came up with seven reasons why ASIC’s view that an SMSF with a starting balance of $200,000 or below is unlikely to be in the client’s best interests is completely incorrect, arbitrary and deeply ill-informed.
– particularly regarding what happens to their super when they die; they get the ability to make a speci c type of BDBN that may not be allowed via a public o er fund (eg non-lapsing with multiple cascading classes of bene ciaries) and / or ensure that their death bene t (which may be well over $200k a er a life policy payout) does not become subject to a public o er trustee’s payment policy (eg see case of Stock (as Executor of the Will of Mandie, Deceased) v N.M. Superannuation Proprietary Limited  FCA 612 where the public o er fund trustee submitted that in general it would not pay a death bene t to an estate unless there are no dependants (including adult children of the deceased fund member as non- nancial dependants), with the result that 2/3 of the death bene t went to estranged adult children).
– given the current very strict rules about how much money you can contribute to super, there are certain strategies that are not available via public o er funds (as they lack the agility of public o er funds) that can give a massive boost to long term retirement income such as LRBAs to buy direct shares and property, even where the starting balance is well under under $200k since that is just the deposit.
2. Investment Strategy
– there are many estate planning reasons for having a SMSF irrespective of balance, eg you can do a non lapsing BDBN or a SMSF
3. Estate Planning
Will or impose speci c conditions to re ect a blended family situation.
– only via a SMSF can you decide which life insurer you want to use and pay via tax deductible super contributions.
– it’s not about how much is in the fund now, it’s about how much will be in there long term for retirement, plus where the fund holds life policies clearly the balance of the fund on a member’s death is potentially going to be much more than the starting balance. ASIC’s focus on short terms costs is simply naïve – it e ectively says it is better to pay 2% fees in a public o er fund that yields a 5% return in the long run compared to say 7% fees in a SMSF that yields 20% returns over the same period.
4. Choice of Life Insurer
5. Long term focus
– only via a SMSF can the client take advantage of certain strategies that are not practically available via a public o er fund, such as the ability to jointly invest in an asset portfolio with a related party via a reg 13.22C unit trust – the starting balance again is not relevant.
– most SMSF members go into an SMSF for the control (“I’d rather lose the money myself than pay someone else to lose it for me”). ey want that control irrespective of the balance of the fund. at desire for control is as valid a reason for having an SMSF as any other.
Unfortunately, it is ASIC’s pronouncements about minimum balances that may not be in the client’s best interests.
6. Client’s Best Interest