If you haven't been following the financial news in Australia over the past few months, you may not have heard of the Cooper Review into Australia's superannuation system. The Cooper Review Panel has made no less than several hundred recommendations about the way that our superannuation system should run, easily the most relevant to those of us involved in the rare coin market are those that advise the Commonwealth Goverment to prevent SMSF trustees from investing in "exotic" assets such as art, rare coins and the like. So if these recommendations are enacted, not only will those Australians that have started up a self managed super fund be prevented from investing in such assets in future, in addition to that, any such assets already held will need to be sold within a five year period.
As a member of ANDA's Cooper Review Sub-Committee, I've spent a bit of time over the past few weeks digesting the Review's contents; mulling over possible amendments that might be made to ensure a complete ban wasn't necessary to meet the Cooper Review Panel's (assumed) objectives, and determining what the likely consequences will be if any one of a number of scenarios play out, and have to say that it's been a torrid time! In my opinion, there are so many assumptions, misconceptions and errors in the information published by and attributed to the Cooper Review, I find it hard to accept the recommendations that have been made. The following cartoon captures a lot of the irony in the decision made by Cooper in relation to SMSF's investing in tangible assets such as rare coins and art.
As the cartoonist alludes, although Mr Cooper has chosen to react strongly to "rorting" in the art market by SMSF trustees, the fact that imprudent behaviour has also been quite evident in the world's financial markets in the past few years seems to have escaped them. (Do the terms Madoff, mortgage backed securities and Storm Financial mean ring any bells?)
That single incongruity is an indication of the widespread disbelief regarding the Cooper Review's recommendations.
Geraldine Doogue, of the Breakfast program on ABC Radio National, interviewed just Mr Cooper last week, I thought that several of his comments during that interview were rather telling. The most alarming of them was: "If you want to buy paintings then do it outside your superannuation fund, it's not connected with retirement..."
If that premise is the basis on which the recommendation to ban SMSF investment in tangible assets has been made, then it certainly is on shaky ground! Tangible assets have been regarded by people of all civilisations and eras as a store of value since the dawn of time, however in Australia in the 21st century they apparently fail the Cooper test: "Conceptually it's difficult to grasp the proposition that a ... SMSF is acquiring artworks .... for investment purposes."
Several members of the Cooper Review Panel have since stated in print that they are quite aware that some SMSF trustees have outperformed the stockmarket with their investments in assets such as art, however they go on to cite a range of other factors that have caused them to recommend a blanket ban on SMSF investment in tangible assets: "...there are a heap of problems with artworks – is it actually a genuine painting, how much is it worth, am I going to be able to sell it..." (Mr Cooper again from the same ABC interview). Now, I don't know about you, but any investor that has half a brain and spends any modicum of money on a rare coin is quite used to resolving those very problems!
Mr Cooper also stated that a description of investing in art "...doesn't sound like saving for retirement, it sounds like something else." Colour me crazy, but this simple insinuation surely isn't a sufficient explanation to reduce choice for a significant number of financially literate and prudent Australians that choose to acquire tangible assets as part of an their SMSF investment strategy.
For mine, the most disappointing aspect of the Cooper Review's work to date is that there has been no visible attempt by the Panel to explore ways in which freedom of choice in relation to rare coins (and similar assets) can remain available, nor does it appear there's been due consideration paid to the impact these recommendations may have on the asset values of those SMSF trustees that have already chosen to allocate retirement funds towards tangible assets. Mr Cooper's summary of the situation is : "The proportion of funds that actually have these types of assets is so small...", which could lead someone to believe that the problem is inconsequential. Although it's been difficult to get accurate empirical data about this subject in the few short weeks since Cooper's recommendations have been made, I understand that the total amount of SMSF funds invested in tangible assets comes to 1.2% of total superannuation funds under management - a sum that quite easily runs into the hundreds of millions of dollars.
Our interim calculations within ANDA regarding the size of this issue indicate that the total value of the numismatic market that could be affected by this decision runs into the hundreds of millions of dollars - it's been estimated that some 20% of the activity in the Australian numismatic market comes from self managed super. In an article in the Australian newspaper last week, Ms Meg Heffron (another member of the Cooper Review Panel) stated that "The review panel "does not accept as logical" claims that art and related industries would be greatly affected by the changes,anyone wanting to invest in such products could do so outside the self-managed super fund model."
How in blazes anyone could possibly believe this is quite beyond me! If 20% of demand is taken out of a market, and that change occurs at the same time as an atypical amount of supply is injected into the market, then unless demand increases from a completely unprecedented source, then prices can only go in one direction, and that is unfortunately down.
The decision to enact the Cooper Review's recommendations has not yet been made, although we understand that a decision will be made in the near future. Representatives of ANDA, the art, stamp and antique industries will be meeting with Treasury officials and other relevant ministers, and hopefully common sense will prevail.
If you feel strongly about this issue, I urge you to contact the relevant government minister with your thoughts:
The Hon Chris Bowen MP
Minister for Financial Services
PO Box 6022
House of Representatives
Canberra ACT 2600
Fax (02) 6273 4406
Fax (02) 9724 6115