Understanding new SMSF guidelines

Christine St Anne  |  20/09/2013Text size  Decrease  Increase  |  
Christine St Anne: Corporate regulator, the Australian Securities and Investments Commission, has come out this week with guidelines for advisors providing advice in SMSF sector. To give us an insight into what those guidelines mean, I am joined by BT Financial Group's Bryan Ashenden. Bryan, welcome.

Bryan Ashenden
: My pleasure.

St Anne: Bryan, under the proposals, advisors are required to give SMSF trustees advise about things like costs, risks, and the investments strategy behind running such a fund. Are those things already done already?

Ashenden: It should be. It's an important part of the advice process that whenever – certainly whenever a financial planner is talking to a client that they should be talking about the risks of investment and then include the structure when you talk about a self-managed super fund. So certainly that should be happening. I think also another area where it does happen, but perhaps what this is trying to address, is how much people take notice is at the moment when a new trustee signs up for a fund. That's when they remember they are going to become a trustee.

They've got to complete a trustee declaration with the ATO (Australian Taxation Office), and it sets out a whole lot of rules and responsibilities as a trustee. It doesn't quite do it as the member and perhaps that's where some of this difference is, albeit often you’re giving the advice to the same person whether it’s a trustee or as a member of the fund, so there are some bits there. Perhaps where you don't see it through is people that don't currently operate under an AFSL (Australian Financial Services License); you are making recommendations to people about establishing funds. So today that as a classic example might be the accounting spaces.

St Anne: Bryan, you mentioned the AFSL license. So do you think advisors and accountants operating in the SMSF sectors should also hold a similar license?

Ashenden: I think it's really important that anyone that's providing advice to someone going into a self-managed super funds, so whether they already in  it – the investments they are going to have there or about setting it up, should actually be operating under the same set of rules. So that’s probably the Australian Financial Services License say that as, I guess, the base minimum requirement. There has already been some moves there, so the previous government talked about introducing this new limited license for accountants to go there, albeit that's not coming into effect until July 2016, in full effect. We're in transitional mode now, but I think the recent numbers are showing that there aren’t many accounting practices that have applied for it during this current transitional period. But I do think it's appropriate to have the same, consistent safeguards apply to advice that is provided to the end client or the end consumer, whether that's coming from a financial planner, from an accountant, or whoever it is. It should be a consistent basis.

St Anne: The guidelines also look at the minimum balances of an SMSF fund and Rice Warner has come out saying that SMSFs need a minimum of $500,000 to effectively run. What's your view?

Ashenden: I always hesitate about saying a minimum balance. I think there are a number of things that come in to – $500,000, as they talk about in the report, is for someone that’s using a fully-fledged administration service and not really doing any of the administrative work themselves, and perhaps that is the right answer. Again, the number is going to defer depending on who you use to provide those support services, because there is different rates out of the marketplace. I think what's more important though is actually why does somebody want the self-managed super fund. That should always be an overriding consideration, because if you say $500,000 is where an SMSF becomes quite competitive, it doesn't mean people with more than $500,000 should be in one. They might afford to it, but it might not be right, because you've always got the questions about trustee responsibilities that you need to take on. So that's a really important consideration.

It's also about what is a person looking to invest into. So if someone's just looking to invest superannuation monies into things like managed funds, perhaps shares, fixed interest type investments, you don't really need to be in a self-managed super fund to do that. So it's always a question about what's their real purpose. Perhaps, it's when you are looking at some of the more unique type of investment, so selling direct property, if you’re going to have a direct property investment, you are going to be looking at a self-managed super fund and you might be starting with less than $200,000, so less than the $500,000 that Rice Warner was talking about.|

The question there really is how quickly is it going to build up in value, when is it going to get to an appropriate level that it becomes cost effective. But again, what is that the actual end client is trying to achieve and what's in their best interest. Sometimes a self-managed superfund is appropriate and other times it won't be. I think it's really hard to just define it by a dollar value.

St Anne
: Bryan, so in choosing an advisor, what's sort of questions do trustees ask of them to ensure that they are getting the advice that they need?

Ashenden: I think the real key question for anyone looking to get advisor in a self-managed super fund, so talking to a professional like a financial planner or, again, even if it's an accountant or its administrator, it’s going to be real questions to that person about what's their level of experience and expertise. Most dealer groups these days have some specialist requirements for their planners who wish to provide advice in the area of self-managed super funds, and whether that’s completing a particular course.

Sometimes it might be a membership of a professional association, so there is SPAA, the SMSF Professionals' Association of Australia, as an example, where it might be that they need to be a member of the FPA  (Financial Planning Association) or AFA (Association of Financial Advisers). When you are looking at accounting side of things, again, many of the accounting bodies these days has specialist designations. Again, that's about making sure minimum qualifications, minimum requirements about ongoing education. So, for a client, that’s going to be the number one thing is to actually what's the persons experience. How many other clients do they deal with today in the SMSF space? I think that's probably an added important question, because you can hold all the qualifications you want, but you might not physically deal in this space on a daily basis, and it is quite complicated. So not just the education, but also I think the level of experience ongoing day-to-day activities that people have in that space are really key critical questions.

St Anne
: Bryan, thanks so much for your insights today.

Ashenden: Not a problem at all.  

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