The customer often pays the cost of doubt

Max Newnham


March 13, 2018

With any change to superannuation, there is much uncertainty, and to some extent scaremongering, with regard to how the changes will affect fund members. The passing of the downsizer super contribution (DSC) legislation is no exception.

Unfortunately for many self-managed super fund members, the industry has grown by using the quantity of paper work produced to justify the fees charged for providing services – rather than basing price on quality and usefulness.

An example of this is the SMSF accounts many super administrators provide. They can be over a centimetre thick, and are produced by systems designed to meet various reporting regulations, without necessarily providing easy-to-find, valuable information to members.

Even more troubling, the documentation for them is often prepared by a computer system as a standard document for very little cost, and in some cases the processing work is carried out overseas, in countries such as Vietnam and India, without the trustees of the fund being aware of this.

In my practice, we divide an SMSF’s accounts into two sections. The first has the important information, such as an investment portfolio performance report and members’ statements. The second is devoted to the statements and reports that regulations mandate.

Trust deeds are another area where SMSF members are overcharged in this way. This is related to the push by many service providers to upgrade these documents constantly. I recently saw an email stating that, as a result of the new DSC, deeds might need to be amended.

Having witnessed on many occasions SMSF service providers stating that deeds should be updated regularly, and for such nebulous things as a change in the Power of Attorney legislation in New South Wales, I was somewhat sceptical as to whether deeds would really need to be changed as a result of the DSC.

Not being a lawyer, I decided to ask Peter Bobbin, managing principal with Argyle Lawyers, a firm that specialises in superannuation and income tax.

His reply was very much to the point. Bobbin said, “This is a beat-up; if a deed needs updating for this, it must have been a very poor trust deed in the first place”! He went on to say that the governing legislation, the Superannuation Industry Supervision Act, is self-imparting.

As professional advisers, given the excesses of the previous system prior to the Future of Financial Advice reforms, in which clients were charged excessive fees for so-called ongoing advice when none was received, it is important to ensure clients get a benefit from our services that exceeds the cost.

I know there is a section of the SMSF industry that states deeds need to be updated regularly to cover all of the changes. The rationale for this is to ensure members’ wishes are complied with, in relation to where their superannuation benefits will be paid upon their death.

I cannot dispute that there have been instances of superannuation not being dealt with in the way that the deceased member wanted, but it’s open to question just how much constantly updating SMSF deeds protects clients. In many cases, these problems can be averted by putting in place binding death-benefit nominations.

How the SMSF advice and services industry deals with the DSC reforms, and the upcoming transfer balance account reporting regime that starts from July 1, 2018, will be a test. Advisers who help clients navigate all the reforms in the most cost-effective way will be regarded as true professionals, while those who look at these changes as a justification for increasing fees will fail dismally.

TOPICS:   trust deeds