7 Rea­sons why ASIC’s $200,000 min­i­mum for an SMSF is not in the client’s best in­ter­est

Business First - - CONTENTS - by Brian Hor

Brian Hor

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 [2015] 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).

1. Cer­tainty

– 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

7. Con­trol

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