On the frontline in 2013

Do you agree with ASIC’s recent surveillance and suggestions of rule-tightening within the SMSF space?

KATHLEEN CONROY
I think it has to be highly regulated. People tend to sit up and listen when they know there’s some sort of penalty attached to the wrongdoing.

The idea is people have a lot of assets in super and if it goes wrong… people can lose a lot. Particularly now, if they’re starting to put property in [their funds], it can all make someone’s life a misery really, really quickly.

Maybe [it’s] my legal background… but I think it should be regulated to the point where there’s still some flexibility and it’s not so scary that everyone just walks away, but enough that people do have to stop and think about it. Regulation is the only way.

Are there any regulatory changes or licensing changes from the year that you didn’t agree with or you thought were overkill?

VICKI STYLIANOU
I think there has been some overregulation and some arbitrary lines drawn. Like with the SMSF auditor registration… who’s to say what’s appropriate? Getting accountants who have been practising for 20 and 30 years to sit an exam – a lot of them found that quite insulting.

There’s probably been too much regulation on the profession and maybe not enough emphasis on educating consumers... I don’t think that we do enough in the space around financial literacy of consumers. Consumers have to take some responsibility as well.

I think that from where we sit, on behalf of our members, I would have to say that the regulatory pendulum has gone too much towards overregulating the profession rather than trying to strike a decent balance.

There’s a lot of cost and a lot of angst and a lot of pressure on a lot of accountants. Is it necessary? I don’t think it’s all necessary.

CLAIRE MACKAY
I think if you spoke to some auditors they’d say it was overkill. If you spoke to accountants, they’d say it’s overkill. Not that I think that regulation is great or that additional paperwork is a joy, because it takes time away from my clients, but I think it is the cost of doing business.

I think that we also need to recognise that we are in a very important position: we can dramatically affect people’s lives, their financial security, and this is the cost of doing business. And this is the cost of not necessarily being so [good] at self-enforcement in the years leading up to it.

What do you think have been some of the most significant developments in the SMSF space in 2013, regulatory or otherwise?

VICKI STYLIANOU
I think that there was probably a lot of uncertainty starting off, and then maybe some hope. Then, when everyone thought that the Coalition was going to win, I think there [were] maybe some people thinking that it might take the foot off the pedal [in terms of] going after the SMSF sector.

The other thing is [we’ve seen] a lot of debate around property going into SMSFs and gearing, borrowing to buy property into an SMSF and what [that means] for the inflating prices… Is it a good thing? Is it a bad thing? The Reserve Bank, ASIC, they’ve [come] out and made comments about it. So I think that’ll be an interesting issue to watch into 2014.

My other point [is] around [the Future of Financial Advice]. What has that meant for us and limited licensing? We’ve been very strong in saying [accountants should] look at it as something that is going to bring a lot of opportunities… and to broaden their scope of what they advise on, and have a really good look at what it is that clients want.

We’ve [also] had the SMSF auditor registration with FOFA. It’s forced a lot of accountants to make a decision as to whether they are going to stay in the space, or get out. That has meant greater specialisation because you can’t afford now to dabble – whether it’s auditing on SMSFs, or advising on them. I think there has been a trend towards more specialisation so I think that’s something else we’ve seen happening.

NATASHA PANAGIS
This year was a massive year for change with SMSFs. There were some really huge changes that came into place on 7 August last year [that] apply to the [2013] financial year. Those changes were… reviewing the SMSF investment strategy regularly [and] considering insurance as part of the fund’s investment strategy. You’re still seeing most providers telling trustees to update their SMSF trust deed to make sure that the strategy is up to date and that they are considering insurance.

There was a whole range of other changes as well that came through, such as the SMSF supervisory levy that has increased. That has increased and been brought forward to be paid in the same income year, so that’s quite a large change as well.
Also, a pretty big thing that didn’t go ahead [was] the related party transactions [provision] that’s now been deferred indefinitely, which is great news for the industry, the trustees and members alike.

CLAIRE MACKAY
I think there are a couple of things in the SMSF space in particular, in addition to all the [broader developments] in financial services. I think the big thing is auditor registration. You can have an SMSF without an accountant and without a financial adviser, but you have to have an auditor.

I think it’s great that there is now a register of all the auditors that have the expertise, knowledge and experience to do SMSFs because that is the only line of defence that consumers have to protect them if they go it on their own and do it themselves.

For the rest of us, FOFA is absolutely critical.

KATHLEEN CONROY
Two things: [There’s] been the massive influx of people buying property in their SMSF, and the springing up of online service providers.

It’s just a real cultural change. People who are looking now [at] a super fund, a lot of them are looking at it thinking, ‘OK, that’s a product I can get straight away.’ So I think the biggest change has been… [the] psyche around self-managed super.

[Often] people don’t understand it. They have not got any idea about what a fund is, or that they will have obligations as a trustee. I think that ties in to the whole psyche change. When you can just download it all, [you’ve] got it. You’re just sidestepping that whole issue of what [it is].

What are the opportunities or challenges associated with SMSFs that you’ve seen in practice for 2013?

VICKI STYLIANOU

As the SMSF sector seems to be growing and growing with a younger audience, that brings a lot of opportunities for specialisation. It also means that with FOFA and other regulation that you can’t dabble, which is probably a good thing.

Because the sector is growing, competition has meant that other parts of the super sector with industry and retail funds are becoming a bit more efficient, a bit more cost-effective and a little bit more innovative in the types of products they’re offering. I think [that] can only be a good thing for consumers at the end of the day, if we get some more innovation and competition into… the super sector generally.

CLAIRE MACKAY
If you open up the mainstream press… there’s articles and articles devoted to SMSFs. It’s starting to become a bit more widespread amongst the community [and] the costs are coming down because it’s competitive in the space, which means that it’s democratisation of it.

Whether that’s a good thing or not, some people would agree or disagree. Personally, I still think there’s a [cost] barrier to entry. For me $300 000, is the starting point and you’ve got to have a lot more than $300,000 in a short period of time.

[There’s a] recognition that this is a space that you can’t dabble in. So if you’re committed as a professional to provide services to clients in the SMSF space, then you should be committing your professional time and dedication to ensuring that you’re not just meeting the law but you’re going above and beyond.

The other good thing has been the development and quite good take-up of SMSF accredited courses by the various professional bodies.

KATHLEEN CONROY
Getting trustees to address issues associated with loss of capacity [is a challenge]. It can put you in a real bind; if someone loses capacity they cease to be a trustee within a period of time.

It’s just the general ageing of people who have SMSFs: [they’re] falling into that older age bracket and unfortunately dementia rates rise… [but they’ve got] this SMSF sitting there and the kids don’t know anything about it. They never had anything to do with it.

I think that’s one of the things that has been coming more and more into the playing field and it’s something that, responsibly, there should be a bit more information [about] out there and trustees should sit back and think [about it].

What are your thoughts for 2014? Do you think we’ll see any action out of ASIC?

CLAIRE MACKAY
I think there will be more in the regulatory space. We’ve already started seeing it – [for example,] the EUs from ASIC in relation to inappropriate advice around SMSFs. And I think that’s great, because it is a reminder to everyone in the space that the regulator isn’t just idly standing by.

I think that if we do have a major blow up in relation to advisers for SMSFs, that would be a timely reminder to both consumers and the industry. Sometimes you do need a pin-up boy to warn everyone.

KATHLEEN CONROY
One of the main things I’d like to see… [is] properly marrying the technology with responsible and compliant behaviour by fund trustees. I think I would like to see out of ASIC or the ATO some sort of scrutiny around being able to download your fund deed.

We’ve got the technology, and we’ve got the fund[s]. The two of them are growing at a rapid pace and of course the two of them have come together.

I would like to see the regulator’s mind being turned to that and how that may have to have some sort of structure around it to prevent people from getting into trouble.

NATASHA PANAGIS
One recommendation [of the Cooper Review] was to review borrowing in super after two years; now that’s lapsed. We might be looking at a potential review with gearing in super. Especially with all the noise that’s going on about property and super at the moment.

The other potential change is the new government and their view on SMSFs and superannuation in their pre-election super stance is that they would not make any detrimental changes to super and they’re going to deliver greater stability and certainty on superannuation. So hopefully they stick by that.

VICKI STYLIANOU
I think we’re definitely going to see more attention from ASIC. The property [issue] will continue to play out for a while especially while property prices continue to rise in the two main [markets] of Sydney and Melbourne.

If property prices start to come off, then it might be a different story. Of course, it all depends on interest rates. I think it will probably play out for a little while longer.

Do you predict an increase in the take-up of the new licensing regime?

VICKI STYLIANOU
It hasn’t been huge so far, but I think that in 2014 – especially as we start to get into the third and fourth quarters – people will start thinking about it a bit more.

ASIC has said they want to boost the requirements for RG 146 by two modules from 1 January 2015, but even so, that means basically you’d have 2014 to become compliant.

A lot of our members don’t have the education qualifications yet so I think there’ll be a big rush towards doing RG 146 and then I think there will be a bit more take-up.