DIY super investors look for safer regulation

A greater number of self-managed super funds are inquiring about converting to Australian Prudential Regulation Authority-regulated schemes.

An uptake in small APRA funds, which are schemes with fewer than five members, has been noted by Lawrence Blake, head of retail and technical services at Melbourne brokerage E.L & C Baillieu.

“We are definitely seeing some switching back [to APRA funds],” Blake told the Australian Financial Review.

The decision to appoint a professional trustee is being driven by older SMSF trustees, who in part are concerned about not gaining access to compensation in light of the demise of Trio managed investment scheme.

Under the Trio ASIC compensation arrangement, trustees of SMSFs that are regulated by the ATO are not eligible for compensation, while those that are regulated by APRA are entitled to compensation.

This comes as the number of SMSF trustees has grown to 850,000 people, who account for about one-third of the $1.4 trillion superannuation pool.

According to official ATO figures, SMSFs are directing greater amounts of their funds directly into residential property, which has risen from about $11 billion in aggregate in 2008 to just under $13 billion in 2010.

Commercial property is an even bigger component of SMSF investments, rising from $31 billion to $43 billion over the same period.

Property of all classes (residential and commercial) currently accounts for about 13% of SMSF portfolios.

Increasing interest in APRA-regulated schemes has also been noted by David Storm, general manager of distribution at Australian Executor Trustees, one of the biggest players in the professional trustee market.

Storm says an ageing population of DIY fund trustees have become interested in the alternative set-up, not because of the demise of Trio, but because they no longer want the complexity of dealing with their own funds.

As a consequence of increased inquiry, Storm expects an increase in the number of APRA funds as service providers begin to promote them more heavily.

This follows a period when APRA small funds have fallen from 3,879 to 3,521 over the year to March 2011.

“I think the balance will move back to the small APRA fund world,” Storm says.

Besides the reasons noted by Storm and Blake, more SMSF trustees may consider an APRA-regulated fund in light of trustees being warned to be careful of developers, real estate agents, mortgage brokers and property ''specialists'', ''researchers'' and ''strategists'' spruiking geared property investments.

SMSF investors who don’t structure property investments correctly leave themselves open to penalties of up to $220,000, the SMH reported.

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer

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