Although the SMSF industry has experienced a positive decade, it is operating in an increasingly challenging environment for both SMSF professionals and trustees, SMSF Association chief executive John Maroney says.
“There are still lots of ongoing changes as a result of the reforms announced in the 2016 federal budget,” Maroney says, speaking to Professional Planner about his upcoming speech to open the SMSF Association Technical Day series. “While implementation of these new rules is still being bedded down, there is also a range of other significant issues appearing on the horizon.”
Maroney said the findings of the Productivity Commission draft report were top of mind for many in the SMSF field.
“It is a draft report and we believe not all the findings are in line with real-world experience on the cost-effectiveness of SMSFs,” he says.
The Productivity Commission used evidence that failed to consider the broader motivations of why individuals set up SMSFs, he adds.
“In response, we have sent in a hefty submission that argues there are many different rationales for SMSFs, so minimum thresholds should not be set,” Maroney says, adding that recent scrutiny by the ATO shows many new SMSFs with low establishment balances grow rapidly in subsequent years.
“The interesting thing from the analysis is the shift to a sustainable balance after the first few years, with many people rolling money in later,” Maroney notes.
“It takes time to transfer money into a fund, so we are strongly backing the federal government’s decision to extend SuperStream to make it easier for SMSFs to roll superannuation monies into their funds. There must be efficient mechanisms to move money in and out of SMSFs, so improvements to the plumbing and infrastructure of the sector are welcome.”
Although the SMSF sector is excluded from the terms of reference for the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, the SMSF Association is keeping a careful eye on proceedings.
“We are pleased to be on the edge of things, as the royal commission is shining a spotlight on problems in the superannuation industry,” Maroney says. “We are caught up indirectly by the poor advice being provided to some SMSF trustees, so anything that can be done to improve the quality of SMSF advice is very worthwhile.”
He pointed to the Financial Adviser Standards and Ethics Authority’s release of guidance on educational pathways for existing financial advisers as a crucial step forward for the SMSF industry.
“We have made a submission on the exam process and planned education standards, which we believe are necessary and good for the industry; however, it is important they do not cause too much disruption for SMSF professionals,” Maroney says.
The SMSF Assocation’s submission on the Productivity Commission’s draft report also acknowledged questions regarding the quality of advice to SMSFs and recommended that any financial planner wanting to advise SMSF members undertake specialist SMSF advice education.
“We want [the transition to tighter and higher educational requirements] to be straightforward and not see advisers leaving the SMSF area because they have insufficient time to fill any gaps in their educational requirements before the deadline,” Maroney says.
Another important development for the SMSF sector is the federal budget proposal to lift the current cap on SMSF membership from four to six.
“We think it’s a good move to allow the fund to take a ‘family’ approach if members want to, although it raises issues around decision‑making and planning. However, we believe funds can work through those with the help of their professional advisers.”
Maroney also outlined concerns about the Labor Party’s proposals to ban limited recourse borrowing arrangements within SMSFs.
“We believe a sledgehammer approach is not necessary,” he says. “One-stop property shops in the sector are not appropriate and people should be encouraged to get advice before establishing an LRBA. Direct property investment (including the use of LRBAs) can be beneficial in some situations, such as appropriately advised clients who can accept the risks involved or recent immigrants seeking to catch up on their retirement savings.”