How Discount SMSF Players Are Clipping Your Ticket

14 Jul 2015

The self-managed super fund industry is being undermined by low-cost platform providers charging hefty commissions and enjoying cosy relationships with the banks, writes James Frost.

Heavily discounted platforms for self-managed superannuation funds are being subsidised by complex networks of rebates and commissions that have the potential to undermine users’ retirement savings.

The platforms streamline the reporting, taxation and advice needs of SMSFs – the do-it-yourself investment vehicles that have attracted more than 1 million devotees across Australia.

Investors have been attracted to SMSFs because of the control and transparency they offer, especially when compared with the opaque fee structures and kickbacks that used to dominate the financial services and investment industries.

But there are signs that the $550 billion squirrelled away by self-funded retirees has proved too much of a temptation, with a new wave of entrepreneurs keen to clip the ticket and carve out a slice from this lucrative market.

One of the most popular operators in the space is Esuperfund. Established in 2006, Esuperfund is a market leader in the discount SMSF administration sector, thanks to blanket online advertising and a low headline fee of $699.

However, Esuperfund also has an audacious series of arrangements in place with product providers that delivers it commissions from right across the spectrum of products used by SMSFs. From cash accounts and term deposits to broking and insurance policies, the provider has relationships in place that allow it to clip the ticket at every possible juncture.

Clients of Esuperfund are compulsorily required to open a transaction account with either ANZ or Commonwealth Bank of Australia. In addition, it is compulsory for clients to use one of the two brokers it nominates, either CommSec or Ebroking (a white-label platform licensed by Esuperfund).

According to Esuperfund’s financial services guide, ANZ and CBA pay it commissions of between 100 and 115 basis points on the cash balances of every transaction account opened by Esuperfund clients. That is, all of them.

A spokesperson for CBA says the bank does not discuss commercial arrangements with third parties. ANZ says it did not pay the commissions at the level outlined in the financial services guide.

In addition, every trade made by clients on either the CommSec or Ebroking platforms will attract a commission of up to $16.75 for trades under $25,000 and 0.075 per cent for trades over $25,000.

But that’s just the start. The network of relationships and commissions on products extends to options, contracts for difference, term deposits, precious metals and life insurance. For instance, a policy bought from Macquarie or AIA triggers commissions of 0.20 per cent and 0.30 per cent respectively.

Perhaps the most lucrative of the arrangements sees Macquarie and St George Bank paid upfront commissions of 0.65 per cent and trailing commissions of 0.15 per cent on loans or limited recourse borrowing arrangements used to purchase property.

Esuperfund did not respond to requests for an interview.

But while Esuperfund’s elaborate series of links with product providers makes for uncomfortable reading they are by no means alone.

Other providers who receive commissions from transactions with preferred providers are Xpress Super, Super Concepts, and brightday, a recent market entrant owned by Rupert Murdoch’s News Corporation.


Steve Tucker, co-founder and chairman of boutique wealth advisory Koda Capital, says investors need to be aware of the incentives and how they can lead to poor outcomes.

“Enough is enough. It’s 2015. Transparency is critical and consumers deserve to know how service providers are being paid,” he says.

Prior to forming Koda Capital, Tucker was the head of National Australia Bank’s wealth management business, which became the first of the big five financial institutions to support a move away from the commission-based model which has dogged the industry.

“Where cross-subsidies exist, whether rebates or some other payment to the platform provider, that’s simply another form of vertical integration,” he says.

“Everybody is concerned about vertical integration at the big end of town but these providers are flying under the radar. They are conflicted and that could affect client outcomes.”

At Koda Capital clients either choose to pay a fixed-dollar fee or a percentage of assets under management. It receives no commissions or rebates from product providers.

Tucker says that to avoid conflicts of interest revenue must only ever flow in one direction – from the client to the business. When firms receive additional revenues from other sources, the temptation is to recommend one product at the expense of another, he says, sometimes with disastrous consequences.


Hein Preller is a director and founder of Superannuation Warehouse, a discount SMSF administration provider that was established in 2010. Superannuation Warehouse administers the accounts of about 2000 funds.

Preller says Superannuation Warehouse has preferred product providers, including Macquarie, but as his company does not have an Australian financial services licence (AFSL) it cannot accept commissions from providers. That is the reason he has applied for one.

“Everyone is chasing the super money pot because there are a lot of commissions,” he says.

Preller’s company was provisionally awarded an AFSL earlier this year but it was retracted when the Australian Securities and Investments Commission commenced legal action, alleging “misleading and deceptive conduct” and making “false or misleading representations”.

ASIC was successful, with interim orders preventing Superannuation Warehouse from advertising its service as “free”.

ASIC wants to impose financial penalties on Superannuation Warehouse and, among other things, is seeking orders for the company to implement a compliance program.

Preller is looking forward to his day in court and having the AFSL reinstated.


ASIC has been policing the advertising of such services since setting up its SMSF taskforce in 2012. The advertising and promotion of SMSFs and related services on websites and in print, radio and social media has been a particular focus.

“The taskforce continues to meet regularly to examine high-risk and emerging SMSF issues,” an ASIC spokesperson says. “Where we identify any breaches, we will take action and we will alert industry and the public.”

In August 2014, three fines of $10,200 each were imposed on Esuperfund for false or misleading advertising. The fines related to advertised costs, the benefits of SMSFs and claims that the business was annually reviewed by ASIC.

ASIC says investors need to be aware that SMSFs do not have access to compensation arrangements in the event of theft or fraud, unlike pooled retail and industry superannuation schemes which are regulated by the Australian Prudential Regulation Authority.

The Australian Taxation Office, which regulates SMSFs and processes the returns produced by the platforms, reminds trustees that, regardless of who prepares a tax return, it is the trustee who is responsible for making sure the fund is compliant.

The ATO also recommends that investors seek “written details of applicable fees and services” alongside “any restrictions or limitations” prior to selecting and appointing a service provider.


Meg Heffron, a co-founder of the fund administrator Heffron SMSF Solutions and a panel member for the Cooper review of superannuation, isn’t as strident in her criticisms of budget providers as some.

While Heffron’s service does not accept commissions, she views platforms that do as legitimate competitors – but with some reservations.

“Some are able to keep their costs low because they have a product subsidising their overheads. They take a cut from the cash account or the life insurance or the broking or the loan,” she says.

“It’s what a constrained offer looks like. You can have any colour you like as long as it’s black.”

While Heffron says it’s not right to label all discount platforms “cheap and nasty” she admits the proliferation of discount providers without sufficient experience is a challenge for all involved in the industry.

“Buying decisions are really complex these days. If you are a consumer you need to educate yourself where you are paying so you don’t get stung,” she says.

“A low-cost provider is a valid model that will work for some people but what is challenging is that they may not have the history or experience.”

DIY fund members who are getting the hang of researching investment risk need to be aware that provider costs are a guaranteed capital loss. They have to be equally vigilant when reading the fine print.



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