Putting my accountant hat on, my initial response to the above question is no – accountants undertaking SMSF work in their practices already have significant regulation and oversight via their professional bodies, the Tax Practitioners Board and from 1 July 2016, ASIC (with the removal of the accountants’ exemption).
However, looking at the potential strategic benefits for accountants, forced registration could be a blessing in disguise. Chartered Accountants Australia and New Zealand’s head of superannuation, Liz Westover, recently commented in regards to SMSF auditor registration saying, “It was a great opportunity for people to really think about the services that they were offering and whether or not they wanted to continue to offer SMSF audit services.”
Looking at the impact of SMSF auditor registration, the number of accountants undertaking SMSF audits dropped from between 10,500 and 11,000 down to 7,000, a 36 per cent reduction. Some of the benefits to the SMSF industry that have been identified include:
– Better data-matching by the ATO providing better regulatory oversight*
– More accurate targeting of communications and educational initiatives
– A significant reduction in independence issues
– An overall increase in the average level of knowledge and competency of participants
*It could be argued that this is not actually a benefit to SMSF auditors directly, but a strong SMSF industry that stands up to scrutiny is in the best interest of every participant.
Impact of registration on the accounting industry
It is widely accepted that the SMSF space is highly fragmented and is only starting to mature from a cottage industry to a recognised specialist field within financial services. ATO statistics back this up. Based on SMSF annual return lodgements from 2013, just over 13,000 tax agents lodged SMSF annual returns. Of those 13,000 tax agents, a sizable 8,491, or 65 per cent, lodged 20 or less SMSFs for the 2013 year.
When the SMSF auditor registration requirements were put in place, the grandfathering provisions enabled accountants who had signed off on 20 or more SMSF audits to become registered without the need to sit a competency exam.
If a similar approach was taken with accountants, enforcing a minimum of 20 SMSFs would send a massive shockwave through the accounting industry. It would knock close to two thirds of tax agents out immediately, based on low SMSF lodgement numbers alone.
Those accountants would also be at risk of potentially losing their business relationship with some of their clients if they were unable to complete the SMSF work together with other business accounting work. Combined with the 1 July 2016 removal of the accountant’s exemption, many accountants would be forced to look at alternatives to change or to ‘beef up’ their SMSF client base to stay active in the space. This could include:
– Acquisition or merging with another firm to gain scale
– Aggressively pricing and picking up more loss-leading SMSF business to bolster numbers
– Recommending more existing clients establish SMSFs, potentially inappropriately, to boost numbers prior to the change
– Consolidate their existing SMSF client base with a number of ‘partners’ and create a joint venture SMSF specialist business
Alternatively, accountants may choose to outsource to a larger SMSF provider that can provide the scale, efficiency and services to them while they maintain the primary relationship with the client.
We’ve already started to see the early signs of consolidation in the SMSF space and this is predicted to continue. The removal of the accountants’ exemption and the decision whether to license or not has already started to force the hand of many accountants in regards to their continued participation in the space.
Impact of registration within accounting practices
Although forced changes to business practices often create angst, it’s not unusual for them to be beneficial in the long term. The registration of accountants, to be able to lodge SMSF returns, would force all firms to strategically look at whether they should continue to offer SMSF compliance services to their clients.
I’ve personally been involved in providing SMSF compliance services to both trustees and advisers for well over a decade. Many multi-disciplined accounting firms have a passion for SMSF, deliver great service, and make it a key point of difference in their offering. They are doing it right.
Unfortunately, many more firms, regardless of size, are doing SMSFs wrong. They don’t have the right systems or software, they lack the specialist knowledge and, most importantly, they lack staff who are passionate about SMSFs.
Although I personally don’t deal directly with trustees anymore, I often see the result of non-specialist accountants dabbling in SMSFs via the advisers we work with. It’s not hard to identify shortcomings in their work: inaccuracies, mistakes, late lodgements, incomplete or non-existing paperwork, poor or non-existent advice, and a general lack of passion for the SMSF work they perform.
I’m not alone in this train of thought. American CPA and accounting business guru Jason Blumer identifies three key things that are holding accounting firms back:
– The services they offer – firms should only perform services they can offer in a powerful way
– The clients they service – firms need to prune clients that don’t suit their service offering to free up capacity to take on clients that are aligned with them and are more profitable.
– The team members they have – firms need to have the right people on the bus and get rid of the dead weight and mediocre performers (acknowledged as the hardest one to address).
Those three key factors (services, clients, team), are critically important for accounting practitioners when determining whether they should continue to offer SMSF compliance services – regardless of whether a mandatory registration process was put in place or not for tax agents.
Summary
With the introduction of sophisticated, cloud-based SMSF platforms in recent years, the disparity between generalist accounting firms that perform some SMSF work and specialist businesses that live, eat and breathe SMSFs has widened.
Although many will likely disagree with me, I believe there should be additional mandatory registration of all tax agents who wish to perform SMSF services. The benefits would greatly outweigh the short-term and ongoing costs. It would also make the SMSF industry even more robust and efficient, while acting as a shield from anti-SMSF lobbyists who invest millions in trying to undermine the strongest sector of the superannuation industry.
Kris Kitto, director, Superfund Wholesale
It’s not that hard Manoj.
I suspect that the number of accountants that do not realise that you have to keep taxable and tax free components separate is significantly less then 1%.
If it took someone 2 to 3 years of rigorous training to become competent in SMSF’s, then I suspect that person would have no hope of becoming a registered tax agent as it would take them several decades to become competent in tax.
How does forcing a large number of accountants to leave the SMSF area and not be able to compete with larger firms (purely because of legislation) help anyone but vested interests.
This author, of course, is a great example of someone advocating on behalf of self interest.
Reading this article is time I will never get back
Also small accountants are the ones most clients go to. WHY? Because the client trusts them and the accountant knows far more about the client, and the client’s background, than any specialist could, and therefore will have a much better idea of what is in the clients interests.
Unnecessary specialization only leads to greater fees.
… and please dont make stupid references to why brain surgeons need to specialize. It just shows the size of your ego if you are seriously comparing yourselves.
Eric
Eric, lets admit it, unlike other tax structures, SMSF is a specialist area. But that does not mean a GP accountant cannot conquer it – all it needs is 2 – 3 years of rigorous training and then you become “the super man” which all clients want…
Accountants who have less than 50 SMSF realize this fact only when clients come to them with complex questions, for example, “how to commence a pension” and the problem then arises is that since the fund started the accountant was not aware that he had to keep count of taxable and tax free components for the fund.
After 26 years mostly in SMSF space, i sometimes realize how much more i have to learn such as more complex areas of SMSF such as Anti-detriments, death benefits and believe me there is a mixed level of expertness among the specialists as well – but they are miles and miles ahead of GP’s
While I do believe small practice accountants should not try to be an expert in every field, thereby being a master of none, I do believe Louise is on the right track here. The ATO know how many funds a tax agent has on their client list. That should direct the ATO on where to direct some of their random audits. But do they?
A director of a large firm wants the government to regulate to knock the smaller opposition out of business. I cannot see a single benefit to anyone apart from people like Kris.
“Hell hath no fury like a vested interest masquerading as moral cause.”
I do not agree with the author. Even if a firm has one client, that should be fine. What is the problem. If you extend the same logic, that means, a firm specializing in super fund should not be allowed to lodge tax return of business clients if their business clients number drop to a prescribed level. Would it be OK with so called super fund specialists?
Preparation of an SMSF is more than the numbers, it is the understanding of the compliance and regulatory framework that underpins the whole super system that is the challenge.
Back in 1999, I identified that to offer the best possible outcome for my clients, I needed to specialise.
There was (and now even more so) to know.
The accounting profession is 40 years behind the medical fraternity.
The accounting industry needs to appreciate that not all accountants can be GP’s, nor should be.
Would you want a GP performing brain surgery?
I agree with your notion Kris.
Maybe it is because we are both specialistis and we see the errors the GP’s make that means we look at this with a more informed view?
What next? Registration requirements for professionals preparing retirement benefit CGT exemptions or any ATO form etc,etc. Is the thrust aimed at producing specialist tax agents? If so then all facets of tax agency scope needs to be in the frame, eg, CGT, GST p’ship/ corporate structures, tax planners vs. tax preparers. My experience that this is already happening with smart practitioners engaging specialist advices as required. That is where the focus need to be along with practitioner education and a health respect for PI premiums.
How insulting!!
Tax Practitioners have to report how many SMSFs they attend to each year to the Tax Practioners Board along with 40 hours of CPE per annum – to ENSURE they maintain sufficient education and experience to be able to perform at a professional level. Moreover, auditors are also employed in this case who can immediately zone in on a large amount of inappropriate tax lodgement issues anyway. This is purely a smash grab attempt at big corporations specialising in SMSF to knock us smaller players out of their park…..
Accountants who are not SMSF specialists are actually providing a dis-service to clients by accepting SMSF assignments – legally barring or putting barriers is not going to stop them. It is the trustees who should pick smart adviser instead of using the same accountant who does their taxes.
Kris
I may be the only ASIC approved SMSF Auditor who wrote and passed the exam when not legally required. I have mixed opinion about the exam lets say the exam is not a barrier to entry.
Of the remaining 6,000 – 7,000 Auditors – how many are auditing for only one referring client (for only one accounting firm) – I think if you take into account partners in an accounting firm only auditing the firms SMSF and auditors auditing employers SMSF via a company structure and auditors working for only one administrators – in my opinion about 90% – which leaves 600 – 700 genuine independent auditors. These auditors do not get a lot of funds to audit – irrespective of their fees.
The line after the article – Kris Katto director – Superfund Wholesale – says it all. Another self serving article to help generate business for himself.
What we really need is a stream-lined accounting degree designed simply for completing SMSF tax returns, but not other returns. Its high time.