Opinion piece written by John Maroney, CEO, SMSF Association
Trustees frustrated by excessive paperwork and expensive advice frameworks will be watching two government initiatives with great interest.
There is growing momentum for financial services reform that could see the cost of administering a self-managed super fund fall, with federal Treasury and the Australian Securities and Investments Commission issuing independent consultation papers that could cut red tape and complexity.
Treasury has called for submissions to its consultation paper, Modernising Business Communications, which has the goal of “cutting business costs (including superannuation) and better reflecting the way Australians want to engage and communicate digitally”.
Running parallel to this is ASIC’s consultative paper 332 – Promoting Access to Affordable Advice for Consumers – that has asked the financial advice industry and other stakeholders to outline what impedes the delivery of good-quality, affordable personal advice.
The SMSF sector has benefited from coronavirus-induced relief measures that cut red tape, and the federal government’s stated aim is to build on this to improve efficiencies and further cut fees.
Research by actuarial firm Rice Warner shows the cost of operating an SMSF can range from $1,189 a year for SMSFs (with just accumulation members receiving a base level of compliance and administration services) to $3,359 a year (for SMSFs that have one or more members in the pension phase and are receiving a full range of administrative and compliance services). These costs exclude the cost of advice.
If the initiatives by Treasury and ASIC come to fruition, these figures could drop further.
The Treasury consultation paper wants to identify business communications that will benefit from technology neutrality changes (i.e., that different technologies offering essentially similar services will be regulated in similar ways), particularly those that lower compliance costs.
It identifies superannuation as one area for improvement, noting that much of the legislation is exempted from the Electronic Transactions Act 1999 that allows information to be recorded or retained in electronic form. This needs to change.
The administrative reality for SMSF trustees – whether establishing a fund or in ongoing financial reporting processes – is that a significant number of signatures, resolutions and record-keeping details are required that could be reduced by any efficiencies emerging from recommendations out of the Modernising Business Communications report.
Trustees know only too well the legislative demands to keep physical documents. One example is that trustees are required to retain physical written records of decisions made about the storage of collectables such as artwork, antiques, jewellery and similar items and to retain them for 10 years.
Trustees are also required to prepare a written rectification plan in situations where the fund breaches the 5 per cent in-house asset rules.
New trustees are also required to sign a physical trustee declaration to declare they understand their obligations and responsibilities. Completed declarations must be kept not only for the life of an SMSF but for at least 10 years after it is wound up.
All this paperwork is time-consuming. And costly. Some of it is also unnecessary – especially in a physical form. Allowing these records to be stored by any means as long as the information is readily accessible, in a format that can be easily reused and where the integrity of the information is maintained can only save trustees time and money.
The ASIC paper is looking for ways to make financial advice, including SMSF advice, more affordable. As COVID-19 highlighted, there is a pressing need for a more efficient regulatory framework for financial advisory services, with trustee feedback to the SMSF Association revealing that they find the advice process lengthy, costly and prioritises compliance and the needs of Australian Financial Services Licences over them.
The system also prevents them obtaining limited SMSF advice they might require – a real source of frustration.
Many trustees only want specific strategic advice but instead often find themselves having to sign up for a comprehensive advice package that is simply too price-prohibitive for the actual information they seek.
Allowing advisers to offer limited strategic advice could be the foundation stone on which an SMSF trustee-focused advice framework is built, allowing well-educated advisers who are registered with a single disciplinary body to provide strategic advice on specific areas such as superannuation and cashflow without specific reference to financial products.
It would also have the side benefit of increasing their ability to provide strategic advice without conflicts of interest.
None of this push to simplify the system and cut costs should come at the expense of the integrity of the system or safeguarding the financial interests of every trustee.
Adequate and reasonable protections are needed so that trustees are not at risk from either poorly or illegally executed corporate documents or deficient financial advice. In any reform, the right balance must be struck.
SMSFs got a fillip late last year when the Rice Warner report found that they were cost competitive with APRA-regulated funds above $200,000 and the cheapest superannuation option above $500,000.
It was only below $100,000 that SMSFs were at a competitive disadvantage. If concrete reforms that drive SMSF costs lower eventuate from these two papers, it cannot help but make this superannuation model even more enticing.