Pick a disaster. Any financial disaster will do - from Westpoint to Storm Financial and just about everything in between. You'll note all these disasters have common features. So-called "advisers" receiving hefty commissions is one. Investors putting most of their eggs in one basket is another.
But each collapse also includes in its casualties a long list of self-managed super fund investors.
With all the sniping between the big retail and industry funds, it's easy to overlook the fact that neither of them is the biggest player in Australia's $1.03 trillion superannuation market. That position is taken by self-managed funds - mostly mum and dad operations with less than five members who share a common attitude that "It's my retirement savings. I'll decide what to do with it."
At last count, more than 750,000 investors had accounts in self-managed funds and total assets of $322 billion. Self-managed funds were the only sector of the market to grow in the March quarter and now hold 31.8 per cent of superannuation assets - outstripping retail funds with 27.7 per cent and industry funds with 17.4 per cent, according to the Australian Prudential Regulation Authority. Self-managed fund investors also have the highest retirement account balances - an average $480,000 in June last year, versus less than $100,000 in the various types of big super funds.
Lots of lolly, big account balances, supposedly unsophisticated investors. It reads like a gold-plated invitation for every investment scam and snake oil merchant going. The former superannuation minister Nick Sherry decided early in his incumbency that self-managed super needed closer attention and it has also been marked for examination in the recently announced Cooper review into super.
But the push to protect self-managed investors is increasingly being dominated by vested interests. There's a real risk that any changes to self-managed super will be dictated by the big end of town, with the people who want to control their own savings being all but shut out.
It is significant that the most important review of the super industry since the introduction of compulsory super, the Cooper review, will be undertaken by a six-person panel that does not include a representative from self-managed super funds - or consumers generally. That's not to demean the panel. All are well-regarded professionals with extensive super industry experience. But their mindset is not that of the do-it-yourself investor.
For its part, the big end of the super industry would be delighted to curb the growth of self-managed funds. If there's one point industry and retail super funds agree on, it's that too many of their potential customers are being sold on the idea of self-managed funds by unscrupulous advisers more interested in lining their own pockets than genuinely helping investors build a retirement nest egg. They point to high expense ratios for self-managed funds (a Tax Office survey last year found funds with assets of less than $50,000 had operating expenses of more than 10 per cent on average, while funds with $50,000 to $200,000 had costs of 2.6 to 3.55 per cent), low account balances (almost 25 per cent of funds had assets of less than $200,000) and a perceived lack of understanding of the legal requirements of running your own fund.
The fact that accountants who are not licensed financial planners can advise clients on running self-managed funds is a further source of irritation.
The super industry argues that self-managed funds are not as well regulated as other super products, to the detriment of do-it-yourself investors.
There's truth in all of this. But it suits the industry to play up the negatives. Most self-managed funds have a simple investment strategy, one or two members and can undertake the required paperwork with an acceptable level of cost and effort. While hard evidence is scarce, many also claim they are doing a better job of managing their savings than the big funds.
The other pressure for greater regulation is arising from the burgeoning industry selling services to self-managed funds. The "advisers" who recommended investors put big chunks of their self-managed super into dud investments have attracted the bulk of negative publicity. But they are not the only shonks targeting self-managed super. Schemes to get illegal early access to your super and using non-commercial instruments such as promissory notes to gain tax and/or super benefits have been targeted by the Tax Office, while contraventions of the super rules on borrowing and in-house assets are common.
Indeed, one area of growing concern is the push to sell self-managed funds limited recourse loan arrangements so that investors can gear up their super.
While super funds are normally prohibited from borrowing, an exception made to allow them to invest in products such as instalment warrants has triggered a rush of products seeking to exploit this loophole.
Marketing of these products has been stepped up since the Government cut the limits on tax-deductible super contributions this month, creating fertile ground for more problems in years to come.
In a recent note to clients, Dixon Advisory deputy chairman and former Herald columnist Max Walsh pointed out self-managed investors have also copped a dud deal through this year's $60 billion in equity placements by listed companies.
Institutional investors - including the big super funds - were generally treated much more favourably than retail investors, who saw their equity diluted because of limited access.
Walsh says self-managed investors should lobby their local members to ensure their interests are heard as the Government ponders changes to the super system. The danger is that in trying to protect self-managed investors, the Government may be persuaded to make running your own fund more difficult and ultimately less viable.
