Industry consultant John Wiseman firmly believes that in the SMSF sector, little understood superannuation solution small APRA Funds (SAFs) will be considered far more favourably and seriously by planners and investors post July 2016 and their prominence and use will escalate dramatically.
Commenting further John Wiseman said, “SAFs have not been well understood or utilised, even by planners and accountants that are aware of them. Many believing SAFs are just a more expensive and less flexible alternative to an SMSF and in doing so, have overlooked many benefits not found in SMSFs”
For many months as the July accountants exemption approached, John Wiseman has been very vocal in predicting the cost of SMSFs will increase substantially as the era of the amateur DIY has come to an end. As a result of the new reality, many investors and trustees will look to exit their SMSFs in favour of a retail, corporate or industry fund.
John Wiseman continued, “A SAF may well be the ideal solution for those considering getting out of their SMSF but who feel they can’t because of tax implications of moving funds and investments”.
“Furthermore, planners that have not considered SAF’s in the past and failed to mention or recommend them in SOAs as alternative strategies for clients will do so at their peril in the future. This change will benefit clients and the industry and planners would be well advised to familiarise themselves with SAFs as a matter of urgency”, continued John Wiseman.
SMSFs have enjoyed unprecedented popularity over past years as more and more Australians sought to utilise an extremely flexible vehicle that gave them control of their retirement journey and enabled the effective accumulation and management of retirement savings.
SMSFs will not disappear after July 1, however the predictions of a decline in their use will be proven correct affirms John Wiseman.
Monitoring wealth and investment programs on talk back radio and television has reaffirmed many SMSF clients calling in with their concerns are in urgent need of professional advice. “Far too many investors in the past were attracted to SMSFs by low or no fees. This has now come to an end with unstructured unqualified advice in the new era resulting in the severest of penalties”, said John Wiseman.
Another area where John Wiseman foresees a huge increase in the cost of administering a SMSF will be the legal fees associated with having the trust deeds reviewed. There is no doubt that post July 2016 many planners will be recommending this in their SOAs.
Although the outlay for professional legal advice may seem significant at first, it is when disputes arise that the cost will be regarded as a very prudent and wise investment.
Following below are some key factors that will underpin SAFs popularity in the future for investors that want to control their superannuation without the complex compliance and administration responsibilities of traditional SMSFs.
- Loss of capacity through dementia or other illnesses is a source of concern for SMSF trustees that does not affect members of a SAF. The prevalence of dementia is projected to increase to nearly 1.13 million people by 2050, so these concerns will continue to grow,
- Trusteeship of a SMSF may cause difficulties for a number of clients including blended families (and those caring for a relative with an intellectual disability) or those facing bankruptcy, non-residents and loss of capacity.
- In addition, an undischarged bankrupt is unable to be a trustee and is therefore unable to be a member of a SMSF. There are no legal issues with disqualified persons being members of a SAF.
- SAF fund trusteeship is provided by an APRA-licensed trustee, which will be a professional trustee company.
- The administration of SAFs is generally performed by professional administration organisations appointed by the licensed trustee.
- Record keeping will be timely and complete since the licensed trustee controls custody of all assets and receives all information and transactions directly.
John Wiseman concluded, “Although misunderstood in the past, SAFs are about to become a major force in the SMSF sector as they provide the perfect alternative for clients wanting the flexibility and control of a SMSF, but without all the compliance risk and responsibility of a trustee – or as part of a tax effective exit strategy from a SMSF”.