Self-managed superannuation funds (SMSFs) with assets under $2 million may return zero or even negative returns, Industry Super Australia (ISA) has warned.
Analysis by ISA found that, in the 2015-16 financial year, funds with balances under $500,00 earned “shocking” average returns ranging from zero to negative 16.7 per cent on funds with less than $50,000 in assets.
Even those with higher balances did not perform very well. While funds with balances over $2 million delivered returns averaging 4.3 per cent, those under $2 million did not deliver performances as strong as either Australian Prudential Regulation Authority (APRA)-regulated or industry funds.
ISA said that this pattern was consistent in the five years to 2016, as the table below illustrates.
Smaller SMSFs also compared badly against retail funds on outlays, incurring a “disproportionally” high expense ratio of over six per cent.
ISA chief economist, Stephen Anthony, said that while sophisticated, high-wealth individuals may be able to make managing their own funds work, these figures showed why doing so was a poor decision for “ordinary Australians.”
“The pattern is clear: the less you have, the worse you perform,” he said. “It’s important to know how your super fund stacks up on fees and net returns – otherwise you could be in for an unpleasant surprise.”
The ISA analysis also found that limited recourse borrowing arrangements (LRBAs) had grown, experiencing an 18-fold increase to $25.4 billion since June 2011. The organisation warned that this could have negative consequences for the wider financial and real estate industry, as LRBAs could be driving up property prices.