A Christmas Message

I’d like to take this opportunity to wish all my readers a very Merry Christmas and Happy New Year.  I trust you have enjoyed my posts throughout the year and look forward to an even bigger and better 2013.

Next year will see a fresh new look for the blog, along with some exciting new initiatives around content to further engage with the SMSF community.  I’m also very excited about the launch of our new SMSF online course, SMSF101 in early February 2012, a joint initiative of The SMSF Academy and Money101.  With the course having recently received 49 CPD points from the SMSF Professionals Association of Australia (SPAA), I believe it will be a ‘game-changer’ for the industry in the delivery of education and training.  Most importantly,  it will provide individuals with a fantastic pathway towards becoming an SMSF specialist.

I look forward to you joining me again in 2013.

All the very best,

Aaron Dunn


Have SMSFs become the target of property spruikers?

I read with great interest recently in the Australian newspaper, an article titled “Setting up an SMSF to buy property a risky strategy” (13 November 2012) regarding ASIC commissioners Peter Kell and Greg Tanzer focusing a taskforce on aggressive marketing of speculative property developments with SMSF limited recourse borrowing arrangements.

Whilst there appears to be a lot of ‘hype’ around SMSF borrowing arrangements, it has highlighted the lack of a Government response to introducing these arrangements into the financial services licensing regime.  It was June 2010 when Treasury released its first consultative paper around licensing and bringing these arrangements under the financial consumer protection framework.  A further consultation occurred in February 2012 and now nearly two and a half years later the industry is still waiting.   The consensus from submissions generally supported bringing these rules into the licensing framework to avoid the situations highlighted in the newspaper article.

So to the Regulators, I commend you in targeting those looking to make a quick buck from consumers with borrowing in super, but let’s get a regulatory framework in place to ensure we have the right licensing framework and regulatory protections.  I just hope this doesn’t put a nail in the coffin for the use of SMSF limited recourse borrowing arrangements…  I kind of believe the framework around the legislative definitions and operation of such arrangements was heading down the right track!

Do you think SMSF borrowing will be hear to stay?


What makes a good SMSF administrator?

The growth of the self managed super industry has spawn specialist SMSF administrators, both domestically and abroad.  This specialisation has also extended to many accounting firms who are now also developing in-house solutions, with specialist services in SMSF administration to complement their financial services offering.

There has been some debate over the past week within the financial services media about the growing trend to outsourcing overseas, with strong growth being reported.  This has been questioned by leading domestic administrators, who argue that it is difficult to effectively manage all stakeholders from overseas, in particular, the Regulator (ATO).

On face-value, it seems like a normal tit-for-tat between service providers in what has become a highly competitive marketplace.  However, it is quite clear that there are two schools of thought about how to build a more efficient and profitable SMSF administration hub – to outsource or invest in technology.

The Cooper Review highlighted the fragmented nature of administrators within the country, with the largest administrator undertaking less than 3% of all SMSFs.  The issue of scale amongst SMSF administrators raised by the Panel never really got any impetus, however we do see a continued push by AMP to “industrialize” the SMSF sector and other similar institutions.  The reality however will continue to be that they represents a very small percentage of a burgeoning industry.

The case for outsourcing

In my view, the outsource model has grown in appeal to the small-to-mid sized accounting practices who continue to confront resourcing challenges and that need to focus their time and energy on ‘value-added’ services.  Without the specialist skills in the office, it is the ability to engage ‘experts’ but retain the relationship that offers appeal with outsourcing.  It may improve profitability, but more importantly, better manages risk.

In making the decision to outsource, one must decide whether to engage a specialist administrator in Australia or offshore?  Business process outsourcing (BPO) services are now provided for SMSFs from India, Malaysia, Vietnam and Sri-Lanka (there may be others?).

The case for investing in technology

For some SMSF administrators, the drive for success is coming through investment in technology.  The evolution of “cloud” based solutions to the SMSF sector is beginning to generate efficiencies through automated data feeds of banks, brokers, and platforms.  Add to this streamlined preparation of trust deeds and actuarial tax certificates, efficiency gains are being gained through robust systems.   Administrators are then looking to further assist clients through dashboard reporting to manage risks around contribution cap breaches and ensuring pension limits are met.  There are many further develops underway in the industry to better equip trustees and financial advisers to manage SMSFs.

So, what makes a good SMSF administrator?

This decision is one of personal choice… something that is ultimately based around the perceived value received from the SMSF administration offering.  You will see administrators competing on price, including offering free SMSF setups and first year ‘free’ offers, right through to premium service offerings that may suit those that require a more high net worth offering.

There are prerequisite skills to compete in the sector to and then those that will set businesses apart.  Tell me what you think makes a good SMSF administrator?

Join me in my open LinkedIn discussion group if you would like to follow this discussion further.

The truth about SMSFs being mis-sold

I’m pretty passionate about defending the SMSF industry (maybe I’m biased), but it makes my blood boil when representatives from the ‘other side of the fence’ take a few cheap shots at self managed super funds with very little supported data (or none at all).  I’m referring to an article I read in Money Management yesterday prepared by Mike Taylor, “Are SMSFs being mis-sold?“.  This article discusses comments raised in a recent Superannuation round-table discussion in which industry fund representatives have questioned the professional standing of accountants, claiming that many are setting up SMSFs with as little as $40,000 for their own commercial gain, rather than in the member’s best interests.

Take some of the following claims made in the article:

  • SMSFs spike in August or September when people do their personal tax;
  • people are leaving industry funds with $30,000 – $40,000 to setup SMSFs;
  • A significant number of new establishments are done not to benefit the individual, but the accountant

When we look at SMSF statistical information produced by the ATO each quarter, the September quarter has predominantly been the second largest quarter for growth in a financial year, not the largest.  Since 2008, SMSF establishments have ranges between 25 – 29% of new establishments each financial year – this certainly isn’t a “spike” as suggested in the article.  Why is September larger than some other quarters?  In my view and based on experience, the decision to establish the fund is typically deferred until the new financial  financial year to save on the compliance costs.  I not sure that sounds like a money making exercise for the accounting profession?

SMSF Account Balances

For some time now, the discussion on a minimum dollar ‘entry point’ has been debated with SMSFs.  Certainly, the role of technology is bringing greater automation and efficiency to the sector to challenge the widely held view of $200,000 being the minimum balance required.  However, I think that a representation that industry fund members are being targeted to switch to SMSFs with low balances is simply inaccurate.  The ATO statistical report 2009-10 shows a continued downward trend in SMSFs being established with less than $100,000.  There certainly may be rollovers coming from industry funds with low dollar balances to SMSFs, but wouldn’t it appear more likely that it is part of a series of rollovers for a member or multiple fund members?

From a statistic viewpoint, this does raise a good question for the ATO to consider in gathering intelligence on the SMSF industry to track the new fund entrants over their initial years to get a representation of both fund and member balances.  This analysis can then show the level of assets being used to create and operate these newly established funds?

Are SMSFs sold by accountants?

There is a significant amount of evidence supporting that the decision making of SMSFs clearly rests with the individual, rather than being ‘sold’ by the accountant or financial adviser.

Consider some of the following:

Whilst being quite critical of the comments made about the industry, I’m certainly not going to sit here on a pedestal saying that every accountant/adviser acts in the best interests of their client in the decision making process of SMSFs.  However, the findings of the Cooper Review did conclude the chair, Mr Jeremy Cooper to say that the industry was “well functioning”.

There was one thing that I did agree within the article, and this was in respect to the comments that the greatest challenge for APRA regulated funds is the building of stronger relationships with its member because of the trusted relationship many individuals have with their accountants.

I may be called biased (I’ve probably been called worse things!) with my views on SMSFs, but my arguments to supporting a contra view are based on statistical evidence obtained through independent research on the SMSF sector.

With many of the myths about SMSFs finally dispelled in the Cooper Review, I would have thought that “SMSF mud-slinging” as a sport would have finished?  With the quantum of superannuation dollars at now stake, I guess it is highly unlikely!

I’d love to hear your thoughts on this topic???

POLL: Do accountant’s sell SMSFs?

Has the fight for the SMSF key adviser seat has just begun?

The announcement by Government on the weekend of the proposed replacement of the accountant’s exemption with a conditional licensing framework has been claimed as an overwhelming victory for the accounting profession who argue their member’s stronger professional standing with providing strategic advice to SMSFs.  It may not necessarily be a viewed shared by many within the financial planning industry, but every argument has two sides… the tax agent requirements extended for financial planners certainly didn’t sit well with many in the accounting profession.  Ultimately though, the government objective of providing greater access to affordable advice can hopefully be achieved through these reforms.

The announced reforms will allow accountants the choice to either:

  • apply for a new limited Australian Financial Services License (subject to holding a public practice certificate and meeting certain training requirements); or
  • become an authorised representative under an existing AFSL holder
The extension to SMSF advice will see accountants be able to provide advice not only in respect to the fund establishment, but will allow for advice on:
  • contributions
  • pensions; and
  • switching of super between funds
Further extensions with the conditional licensing framework around class of product advice have also been provided to allow for advice on superannuation products, securities, general and life insurance, simple Managed Investment Schemes, and bank deposit products.
How will win the battle of SMSF advice?

With the growing trend of ‘coach-seeker’ SMSF trustees, this revised licensing framework provides an exciting opportunity for those wanting to focus on strategic advice to SMSF trustees.  This non-product advice area was something the accounting bodies (and SPAA) were lobbying for.  For many practitioners, these reforms can allow them to focus on reshaping their business model to diversify revenue towards advice and progressively move away from compliance-based businesses.

The move into a licensing regime may have its challenges for accountants, but certainly shouldn’t be a barrier-to-entry to move formally into the SMSF strategic advice space.  The ‘grey’ area in which many accountants operated around contributions and pensions in my view will see many look to grow this area, with ‘scaled advice’ as a potential benefactor, where the trustee/member will look for piece-by-piece advice through the SMSF life-cycle.

With the financial planning professions appetite for SMSF advice also growing, it presents an interesting time for the industry.  Many planners now bypass the accounting relationship with the administration and compliance function outsourced to specialist service providers or even setting up internal admin teams.  Who has the relationship moving forward becomes paramount as to who gets to provide the non-product advice to the client.

The diagram below shows the segments of the industry and where focus will be for both the accountant and financial adviser after the introduction of these reforms from 1 July 2013.

It is expected that 10,000 accountants will move into the ASIC licensing framework to continue to provide advice in the area of SMSFs.  Moving these accountant’s into the consumer protection framework for SMSFs with licensing not only creates a level playing field with financial planners, but I expect it to redefine the quality of advice and lift standards across the sector.

It’s times like these you need to ask yourself – are you ready for the future of the SMSF industry?

POLL: Tell us about your thoughts on licensing as an accountant; what will you do?


(C) The SMSF Academy 2012
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