Government support for the Cooper Review means there will be greater opportunities for financial planners to advise self-managed superannuation funds (SMSFs). But before you take on this sector, you will need to know what it takes to really be competitive. Krystine Lumanta reports.
The Superannuation System Review (Cooper Review) has become a wake-up call for the self-managed super funds (SMSF) sector. The recommendations approved by the Government might appear minor in the context of such a robust and well-established area – but nevertheless, they will have a major bearing on the opportunities for financial planners.
The role of the financial planner is changing again, this time with the Cooper Review reforms covering SMSF qualification requirements. However, this should encourage, rather than deter, professionals to enter and succeed in the SMSF environment, due to opportunities that will emerge.
According to the September 2010 Australian Prudential Regulation Authority (APRA) Quarterly Superannuation Performance report, there were 434,000 SMSFs in September last year, up 7 per cent from 2009. On average, there has been a net growth of 6300 SMSFs per quarter over the past two years. This includes establishments and closures.
This proves activity is growing, and so the need for quality advice in this space also gets bigger. And knowing the means or tools by which to succeed in this space will create a competitor, rather than just a player.
Within the SMSF arena, it is fundamental for financial planners to recognise the significance and impact of competency and specialisation.
‘I think there will be many advisers who will recognise this opportunity, and many already have’
Ben Smythe, director of sales and marketing at SMSF specialists Heffron, believes there have been no real barriers to entry in becoming an adviser, an accountant or an administrator in the SMSF sector.
“You could easily provide advice to an SMSF client, provided you have the standard licensing,” he says.
“But what the whole new SMSF world is going to be is this greater sense of professionalism, in terms of being able to advise clients [due to] licensing requirements, including accountants, the removal of the accountants’ exemption and greater emphasis on training and ongoing education requirements for this space.”
Having SMSF competency means a comprehensive knowledge of the sector overall. This means financial planners will need to know the challenges they’ll be up against and what will possibly affect their day-to-day practices.
Tony Negline, general manager of corporate strategy at SUPERCentral, says financial planners need to be clear about why people want to set up SMSFs in the first place.
“What are SMSFs embracing? A lot of them are quite cost-conscious and that emphasis is not going to change,” he says.
David Shirlow, executive director at Macquarie Adviser Services and a director of the Self-Managed Super Fund Professionals’ Association of Australia (SPAA), believes that due to the scarcity of top professionals at this early stage of specialisation development, financial planners have an advantage.
“In a way, making the effort to attain specialist accreditation is a means of really establishing yourself in the industry,” he says.
“Whilst it’s obviously time-intensive and you go through the hoops to attain it, one of the benefits is [it] then gives you a credential that others are not prepared to go through. I think there will be many advisers who will recognise this opportunity, and many already have.”
Smythe agrees and says the number of people who can provide advice to SMSF trustees is going to decrease once the new qualification requirements come in.
“This will be pretty significant,” he says.
“Those advisers in this space and who are already in are going to be in a pretty good position; they’re going to have a jumpstart on everyone else.”
The Government’s response to Cooper was broadly in line with its proposals and was less intrusive than expected. This is a clear sign of stability in the SMSF sector.
Negline says: “While the Government saw they could make large-scale changes, they recognised that it was not necessary and resisted to make change for change’s sake; so it was a good outcome.”
“What’s come out of Cooper is that the picture of SMSFs is now public knowledge,” he says.
“What [the sector] has realised is that it doesn’t come for free – in time, effort or money. You’ve got to be prepared to fight for what you’ve got. That’s the outcome.”
According to Neil Olesen, deputy commissioner of superannuation at the Australian Taxation Office (ATO), the reform measures will “complement and build on what we already have in place, such as our recent work to stop illegal early release (IER) schemes, our focus on improving approved auditor compliance … and our ongoing support to trustees in understanding and complying with their obligations under the law”.
“In the 10 years the ATO has regulated SMSFs, we have seen a strong growth in both numbers and assets held in the sector. SMSF trustees now manage over $400 billion of super assets,” says Olesen.
“The ATO will continue to focus on supporting and educating trustees and professionals. We are confident this approach, where appropriate, [of] taking a stronger stance on non-compliance, is the right one.
“Financial planners will need to be aware of changes to comply with the law and also advise trustees on how the changes to the investment rules affect them.”
These future changes will maximise the opportunities for financial planners to stand out from the rest of the pack.
“Financial planners and advisers play an important role in the SMSF sector. They advise trustees about investments and risks,” says Olesen.
“As such, they are in a key position to influence trustee behaviour on investment choices… At the same time, the Government has acknowledged the need for improved regulation in provision of financial advice to provide trustees with greater protection and reduce the risk of inappropriate advice.
“The ATO has been tasked with the collection of information about individuals who provide advice in relation to the establishment of SMSFs as part of the SMSF registration process and will pass this information onto the Australian Securities and Investments Commission (ASIC) to assist them in regulating the Australian Financial Services Licence (AFSL) regime.”
Financial planners can easily exploit SMSF opportunities by pursing a specialist title, but Smythe believes it is an aspiration everyone should have anyway.
“You can’t be a generalist in terms of self-managed superannuation,” he says.
“You’re going to have to be an expert, because your competitors are going to be specialists. You’re going to be competing against other advisers who have educated themselves, who have aligned themselves and are very well qualified SMSF experts. That’s going to be the game changer.”
Smythe says a high level of knowledge is necessary to enter an area that is multifaceted; otherwise planners may experience difficulties.
“That’s always been our feeling. We’ve been doing this for over 10 years and it’s complex stuff,” he says.
“We see a lot of self-managed funds that are not being run to their optimum [capacity] and that’s probably a result of the adviser, the trusted adviser, not knowing the ins and outs of what you can and can’t do with a self-managed fund.”
Philip La Greca, technical services director at Multiport, predicts that in the future there will be a shift towards categorising each aspect of superannuation.
“What are the special skill sets that you need for SMSFs, which are distinct from other super?” La Greca says.
