Opinion piece written by John Maroney, CEO, SMSF Association
Looking for straightforward advice and getting tied up in paperwork or high fees? Why it’s time for change.
There is a pressing need for a new regulatory framework for self-managed super funds (SMSFs). The current system is failing the more than 1.1 million SMSF trustees and members with more than $750 billion in funds under management because the cost of getting basic DIY super advice is often prohibitive, resulting in many funds having unmet advice needs.
SMSFs are complex structures that are certainly not for everyone. Many SMSF trustees and potential trustees must seek advice to understand the myriad legislative and regulations applying to SMSFs to determine if this superannuation vehicle is appropriate for their circumstances.
The evidence bears this out, with 63 per cent of SMSFs established on the suggestion of an adviser and 81 per cent of SMSFs paying for advice in some form or another, highlighting the importance of quality advice in overseeing SMSFs’ retirement income strategies. Clearly, specialist SMSF advice is necessary for many trustees, and, when provided, is relied upon heavily.
But the current licensing regime prevents SMSF trustees from obtaining the basic advice they require. SMSF trustees who wish to seek basic advice are either required to seek it from a licensed adviser at a high cost or must act without advice. [Legislative changes that took effect in 2016 meant accountants could offer this advice if they gained a limited licence. Most chose not to.]
The clearest illustration of how this issue can affect SMSFs is that an unlicensed tax agent or accountant, who may be across all an SMSF’s financial and tax affairs, cannot recommend that a trustee winds up the fund when it is clearly inappropriate for their financial and personal circumstances.
Other examples are how they can’t advise an SMSF trustee when it may be appropriate to start a pension or when a contribution to super would be beneficial.
Scenarios such as this have raised concerns that there is a need in the market to service the gap between full financial advice and smaller matters that has been caused by the licensing regime since the removal of the accountants’ exemption.
Of course, fully licensed financial advisers and limited licensed accountants can provide this simple advice, but it still involves costly documentation disproportionate to the advice the trustee seeks. Trustees are strangled by high regulatory costs and regulations, compounded by the fact that most accountants are not interested in securing a limited licence. [In the 2018-19 financial year, ASIC approved only four limited licences.]
What’s needed is a system where SMSF trustees can get simple strategic advice in an efficient and cost-effective way from both financial advisers and accountants. Filling this advice gap can be done without compromising the standard of advice.
A simplified consumer-centric framework would provide easier access to strategic advice from a wider pool of professionals operating under the same rules. Being able to get advice such as when a pension or a contribution may be appropriate, or when an SMSF is no longer in your best interests in an efficient and cost-effective way, will be essential with an ageing trustee population.
This means receiving documentation in easy-to-understand language that clearly explains any strategic advice a trustee is seeking. Such documentation will mean lower costs as it will remove the need for the lengthy statements of advice that are currently required just to provide an answer to whether a contribution to superannuation is a good idea.
Most importantly, a framework that puts consumers first means better consumer protection. First, targeted superannuation and SMSF education should be required for advisers who wish to provide simple strategic superannuation and SMSF advice. Second, a simpler framework will mean less loopholes so that this advice can be provided by an appropriately educated adviser or accountant instead of stilted conversations with unlicensed accountants who legally can’t provide advice but can act on an “execution client directed only” basis.
The intention of the 2012 legislation that took effect on 2016 was to have a single licensing regime applying to all, regardless of whether the advice was provided by a financial planner or an accountant. It has failed to meet this worthy goal. Now is the time for a regulatory framework that does reflect that goal so SMSF trustees can receive the advice they so sorely need.