Financial planners often lack the essential knowledge of self-managed superannuation funds (SMSFs) required to adequately advise the growing sector, says the head of technical standards at the SMSF Professionals’ Association of Australia (SPAA).
“We see that, from self managed funds, there’s not enough education about how SMSFs operate,” says Graeme Colley, SPAA’s director of technical and professional standards.
“Some of the questions I get…someone came in with some very simple questions, and you think, do a bit of research, a bit of knowledge would help them find out where the answers are.”
Colley explains he often gets enquiries from people asking what their next step is in establishing an SMSF, without having necessarily covered the important steps beforehand.
Inappropriate SMSF advice not endemic
Their next step can be seeing a lawyer about a contract…it’s the hand-holding I think some of them need,” Colley adds, though stresses that he doesn’t believe there is a widespread problem of people being incorrectly advised into SMSFs.
“The Australian Tax Office (ATO) statistics don’t support that, because you’re seeing more SMSFs accumulate more money, so you’re seeing more [balances] in the range of at least $300,000 to $500,000 than in the smaller numbers,” he says.
“We don’t want to see people getting in there with [balances between] $50,000 to $100,000 only in an SMSF.
“If you’re opening up a self-managed fund which has only got a tiny amount of money in there, it’s just not worth it…and from a demographic point of view, sometimes a self-managed fund works, other times it doesn’t, and that’s the same with other super funds too,” he says
Bridging the knowledge gap
“From the advice side of things, we’re very much interested in the professionalism and in [ensuring clients are] getting good advice, it’s so important,” Colley explains.
“What that entails, in our mind, is to improve the skills of the advisers. And how you do that, from our point of view, is improving the qualifications that advisers have got.”
He emphasises that in this context, the term ‘adviser’ refers to anyone providing specialist financial advice to a client, whether a financial planner or an accountant.
“The ability that they’ve got to give advice needs to be at a far higher skill level than they’ve got now.
“We’ve spoken to the Government over the years in trying to get that raised. There’s a lot of pressure on that. And we’ve seen with some of the things that have come out from the Australian Securities and Investment Commission (ASIC), in the future you will need a degree to get into that advice space,” Colley says.
Referring to some of the significant progress that has already been made, he points to the Financial Planning Assocation’s university degree requirements for new members. “We think this is a good thing. And then we’ve got our [SPAA] qualifications as well, the accreditation for [providing advice] on self managed funds.
Unknown unknowns
A lack of data about the SMSF sector itself is another difficulty in the space. Asked what proportion of SMSFs are established by financial advisers versus accountants, he says SPAA has “no idea. We get asked that question so often. And it’s hard to tell, because if I’m a financial planner, I won’t be setting the fund up for you because I’m not an expert.
“So I’ll be referring you to someone who’s got a package, or I’ll use [the client’s] accountant…they’ll get your little package together and they’ll put their name on it.”
