Yes. I am not quite sure how you would police that, but our view is that SMSFs don’t make any sense below $500,000. I think there should be at least a guideline of $500,000.

Should there be a mandatory guideline?

It is kind of difficult to make it mandatory, and kind of the other side of that is: what if it starts at $600,000 and goes down to $400,000 for whatever reason? Members draw it down and if it goes below $500,000, do you need to convert it back to a collected fund at that point? There are some tricky questions around that. I think there really needs to be an onus on whoever is advising or establishing an SMSF that if they are doing that below $500,000, why there is justification for doing that.

Why do you believe ‘small’ SMSFs don’t make sense?

Because if you look at the data on them it shows that their returns are terrible and their costs are huge. If you look at the data published by the ATO, which they do periodically, the published returns and costs for different sized SMSFs, it is very clear that SMSFs below $500,000 perform much worse than major collective funds. Their costs are [also] drastically higher. It is very clear.

Many submissions to the Financial System Inquiry have suggested that the growth in the SMSF sector poses a systemic risk. Do you agree?

Not really, because it is so dispersed. There is a lot of risk within the SMSF sector but it is very dispersed across a very large number of people. I think there is a lot of fraud and a lot of losses within the SMSF segment, but because it is so dispersed those losses come a million dollars at a time or 10 million dollars rather than 1 billion.

I think it is obvious there is a lot of fraud in the SMSF segment and a lot of money gets sucked up into high-risk investment schemes that go bad.

If you look inside any significant investment collapse where investors are involved, you are going to find a lot of SMSF money in there.

When you have got a large amount of money that is relatively unprotected, it is going to attract fraudsters. That will happen every time.

Do you think the sector’s growth is attracting the wrong candidates for an SMSF?

It is attracting the wrong kind of people that want to take the money from SMSFs. It is actually not growing that fast anymore and that is a really important point. It is not growing at double digit organic growth rates anymore, it is a single digit growth rate industry if you take out investment returns. It is very large, however, obviously and the problem is that it is a honeypot, which has allowed a whole lot of people into the industry who were shut out before, some of which are undesirable.

What are your thoughts on the growth in SMSF borrowing?

It is growing fast off a low base. I don’t think we have a long enough data series yet. I think when the data for this financial year comes out we will get a better view, but that won’t be available for a while. I don’t think we have data yet but it is an area of concern because this is where you tend to get the losses arising from when you combine gearing with real estate or exotic assets. That tends to be where the problems arise.

Do you believe SMSFs are involved in fuelling a residential property bubble? Why or why not?

I think they are a factor, but I don’t think it is the decisive factor. I think it is one of the reasons why property markets are so strong: you have got a new source of demand from superfunds that wasn’t there before. But I don’t think it is the only factor, or even the leading factor. The main factor is that interest rates are low, the economy is OK and there is some pent-up demand driving the market, and you can see that effect in markets across the world. Look, I think the SMSF thing is definitely out there but it is pretty hard to argue it is a major factor.