Will ASIC and ACCC prosecute?

If TAFKAS were to tell people where to invest their money, ASIC would demand that TAFKAS have an Australian Financial Services Licence (AFSL).  And without a licence, ASIC would aim all their guns at him.

If TAFKAS were to tell people where to invest their money based on incorrect and misleading data, ACCC would pursue TAFKAS for misleading and deceptive conduct.

Right?  Yes.

What however happens when ASIC tells people that small balance Self Managed Super Funds (SMSFs) are bad investments because of the high costs of administration?

Nuffin.

Here’s a snippet:

‘SMSFs may be an attractive option for investors wanting more control over their superannuation investment strategy, but it requires real skill, care and diligence to manage your own superannuation. SMSFs are not for everyone simply because not everyone can meet the significant time, costs, risks and obligations associated with establishing and running one.’

ASIC, in making this statement, appears to be providing general financial advice.  And the provision of general financial advice requires an AFSL according to ASIC.

What about this from ASIC:

Property can be a risky investment.

Really?  Is ASIC aware of any investments that aren’t risky?

But where is your licence ASIC?  Where is your compliance team?

Ok.  How about accuracy.  According to ASIC:

The average cost of running an SMSF is $13,900 a year.

Interesting.  But the organisation who regulates SMSFs is the ATO and what does the ATO have to say?  Well:

The ATO has refined these figures, showing operating expenses are closer to $3,923 a year.

That’s about 1/4 of what ASIC says and the ATO actually has the data from SMSF account.  Odd as this might sound to ask, but who do you trust more – the ATO or ASIC?

(PS – the ATO figure is about what it costs TAFKAS to manage his SMSF).

Is this misleading and deceptive conduct?  Should the ACCC investigate ASIC?  Should ASIC prosecute ASIC for (allegedly) providing general financial advice without a licence?

Will, if proved, ASIC ban ASIC officials?  Will ASIC make ASIC make a contribution to the ASIC education fund?  Will ASIC make ASIC make a correction?

Stay tuned.  Perhaps around the time the Commonwealth budget is back into balance might ASIC and the ACCC pursue this.

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13 Responses to Will ASIC and ACCC prosecute?

  1. PB

    “SMSFs are not for everyone simply because not everyone can meet the significant time, costs, risks and obligations associated with establishing and running one.’”

    So does ASIC plan to address these issues?

  2. billie

    best of luck Don TAFKAS

  3. The actual headline:

    ASIC urges consumers to question whether SMSFs are right for them

    Your headline:

    ASIC tells people that small balance Self Managed Super Funds (SMSFs) are bad investments because of the high costs of administration?

    What ASIC has said is not fundamentally incorrect or misleading (your statement is misleading). ASIC simply highlights the potential pitfalls that an individual with little or no experience in managing large investments will have to understand. Unless someone is experienced in investing in shares etc, one’s nest egg could quickly be compromised with a SMF.

  4. Terry

    PB
    +1

    To the extent that there is no political will to remove the compulsion from Superannuation (too many vested interests with sticky fingers on others’ cash), at least simplify it.

    Superannuation is unnecessarily complex, which leads to far too much wasted wealth “administering” those funds and complying with useless regulation (upon regulation upon regulation – most of them deployed to “fix” the last useless regulation).

    What a shit-show “Super” in Australia is.

  5. Bruce of Newcastle

    The ATO has refined these figures, showing operating expenses are closer to $3,923 a year.

    So running your own superfund costs $3923 per year? Turning that into tax equivalent at 15% comes to:

    3923/0.15 = $26,153 pa

    So if you had $26,153 pa of taxable super returns the administration cost would be as much as the tax you paid.

    Now if you are on a marginal tax rate of 30% for normal PAYE tax it means you would have to have 2 x 26153 = $52,306 of superannuation income for it to be worth having the money in a super fund. And at 5% yield you would have to have over a million bucks in your fund to be worth the effort of having the super fund, compared to just taking all the money out and giving the finger to ASIC and all the stupid administration crap they impose on you.

    You can now see why people are lining up to get their money out. It isn’t worthwhile having a super fund at all, because the effective tax you pay is ‘way higher than if you just paid normal marginal tax rates. Especially since if it isn’t in a super fund you can do exactly what you like with your own money, without ASIC’s Karens scolding you.

  6. Suburban Boy

    ASIC has a statutory responsibility to provide general advice on finance and investment to the community. It is not in breach of any laws.

  7. Mak Siccar

    The average cost of running an SMSF is $13,900 a year.

    Interesting. But the organisation who regulates SMSFs is the ATO and what does the ATO have to say? Well:

    The ATO has refined these figures, showing operating expenses are closer to $3,923 a year.

    Bullsh1t. Mine costs me about $1500 pa that includes accountant, auditor and ATO fees.

  8. John A

    The Lord Chancellor understands the difficult position described by TAFKAS.
    [LC] Ah, my Lords, it is indeed painful to have to sit upon a woolsack which is stuffed with such thorns as these!
    (Iolanthe)
    Somehow, I doubt that ASIC or ACCC will understand, though.

  9. John Bayley

    Bruce #3494227:

    A few misconceptions in your post.

    The minimum unavoidable cost of running a SMSF is its annual accounts and audit. That can be as low as $1500, although it’s typically closer to $2-2.5K.

    *Any* investment structure, including holding assets in your own name, will require tax to be done and lodged, although you may not need to be audited (that part usually costs around $500 p.a.)
    So there will be costs as well, and the more involved your portfolio strategy, the more the accountant will want.

    Most individuals’ marginal tax rate is not 30%, it is 34.5% (including Medicare levy). Lots of people earn more than $90K, so their MTR can be as high as 47%.

    If you’re thinking companies (30% TR), then that money belongs to the company, not to the individual, so you *cannot* access it at will. To do so, you’ll need to pay a dividend (i.e. be subject to your MTR), or have a related party loan, which accountants love, because it means they get to charge you a lot more.

    Furthermore, as things stand, you can have up to $1.6M per SMSF (or general superannuation) fund member, and your MTR/CGT after age 60 is 0% or earnings and 0% on pensions/withdrawals. That feature is not available in any other structure.

    Superannuation does NOT make sense for young people or low income earners, and SMSF structures definitely are not for everyone. You do need to have at least $500K in there to make it worthwhile (IMO, anyway).

    But it DOES make sense for many and it DOES have advantages to other investment structures, IF you are prepared to either learn how to use those to your benefit, or can find someone else who does.
    And I can assure you that many accountants do not fall into that category [of knowing SMSF well enough to give decent advice]. As far as financial planners are concerned, they’re even worse.

  10. Tim Neilson

    Now if you are on a marginal tax rate of 30% for normal PAYE tax it means you would have to have 2 x 26153 = $52,306 of superannuation income for it to be worth having the money in a super fund.

    Not quite Bruce.

    The admin costs don’t necessarily double with a doubling of funds under investment. So on your scenario the first $26,153 of income would be break even (15% tax and 15% admin, compared with 30% tax outside the super system) – but the admin fees are deductible so actually even then the investor would be slightly ahead after tax – , but the full advantage of 15% as against 30% might well start kicking in at dollar number 26,154.

    Your general point may be right. I recall that it used to be said that for anyone under $250,000 at the very least an SMSF doesn’t make sense on the raw numbers, and that was at a time of higher investment yields. But an SMSF doesn’t (yet) have to have union members on the board of trustees.

  11. Tim Neilson

    ASIC has a statutory responsibility to provide general advice on finance and investment to the community. It is not in breach of any laws.

    Fair comment.
    But one wonders whether the great and good who make these pronouncements have gone through all the (mostly useless) credential training and continuous professional education that they impose on anyone else presumptuous enough to want to utter such a comment.

  12. Bruce of Newcastle

    Guys you have it wrong.

    My point is that enforced administration costs for a SMSF or fees charged by a union superfund or etc are comparable to paying no fee or admin cost on an investment which is taxed at a marginal rate as normal income. Money is money. Tax or admin charges are down the gurgler either way. So paying more tax is fine if it saves even more on fees and charges.

    That is what I do. I have passive yielding investments with very little administration cost and I do my own tax return.

    You can run up a spreadsheet if you like – effective imposts on your super investment vehicle (tax plus fees plus admin charges plus personal time) compared with the same on a simple investment at marginal tax rate. (Done many years of such financial analysis, so yes I do know what I am doing – and I just picked a number 30% as being a simple arithmetical example, which you seem to have misconstrued.)

    I suspect it isn’t worth it for most ordinary people – and they are actually being forced to pay more in tax and charges for superannuation than if they put it in an investment without the insane Karenism that super is subjected to.

    And compared to using the money to pay off a mortgage – absolutely the very best ROI of any option because it is totally risk free since it saves interest and saves on after PAYE tax payments (unlike in the US where mortgage interest is deductible). Indeed if you ran this up as a comparative NPV the numbers would be horrific for super because the money in the super vanishes at discount rate (at a present-day calculation basis).

  13. Lawrence Ayres

    My wife and I have a SMSF and have had it since 2007. It costs about $3500 per annum and I look at it occasionally to see who is underperforming. MQG holds that record at the moment. For 12 months the Fund was managed by Macquarie wrap and for the privilege it cost me over $13000. Growth since I resumed management was just as good as when they had it. My portfolio is down because of the virus panic but not as much as the ASX. I would therefore conclude that ASIC is shilling for the fund managers and not really concerned for the fund owners. As the writer says they are not licenced to give advice and the advice they are giving is crap.

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