Veteran industry lawyer Shane Ellis shares his views on the SMSF sector with Katarina Taurian and explains where SMSF professionals and trustees are missing the mark.
What kind of legal complications do you see arise with SMSFs that trustees should be aware of?
With any SMSF matter, and especially on the estate planning side of things, which is one of my areas of expertise, I seriously think that the main problem that creates a lot of expense through the courts and emotionally arises directly from the lack of quality of the documentation. It’s not just a financial impost that results in a SMSF matter or a fight over an estate, it’s also the emotional impact. SMSFs are money based trusts. Fights over money often destroy family relationships. These can be largely prevented with proper planning now.
Everyone’s circumstances are unique, especially when we’re talking about estate planning. [Some professionals] run into the trap of going off a “one-template-fits-all” premise. I’m seeing this especially with accountants and financial planners who think they can use a universal template for every client’s circumstances in their firm. This is a very dangerous tact to follow.
You just can’t efficiently [work on] a “one-template-fits-all” basis. Firstly you’ve got to know what’s in the SMSF deed that you’re advising on to ensure that you can do what you propose to do for the client. The SMSF deed has the rules within it to say what can be done for an SMSF. The SMSF laws are regulatory by nature and they say what cannot be done.
Do you think there is cause for concern with SMSFs, borrowing and property investment?
There’s only a small percentage of people that are actually in real estate in a self-managed fund. There’s a lot of interest, there’s no doubt about that. But I do think that’s what’s going on in the press at the moment is a lot more hype than based on the statistics of the actual real estate holdings by SMSFs.
[It was] extraordinary to see the Reserve Bank of Australia come out and make a statement in relation to SMSFs and a supposed real estate bubble. What facts did they base their comments on? Any stats I have seen don’t even get anywhere close to making the hype and hot air being expended in the media on the topic accurate.
Are individual trustees well-suited to personally overseeing their SMSF’s compliance obligations?
I think that the term ‘self-managed’ is a misnomer. I think it’s a team approach that will obtain the best results for running any SMSF. I personally can’t do what the accountants do, I can’t do what the advisers or administrators do, and I wouldn’t endeavour to do that. So for a layperson (who’s not a lawyer, not an accountant, not a financial planner,) to think that they can cover off on [their obligations] on their own, I think that’s where the big risk comes in. It doesn’t have to be a huge expense.
Getting the right advice and being supported by the right people makes things a hell of a lot easier than trying to sort it out on your own, or after a mistake has taken place.
What about in the advice side of the sector, are there any education gaps with SMSF practitioners?
As soon as you’ve got a pool of money anywhere you’re going to start to seeing sharks circling. I think you need to have the right advisers in the right sector. This particularly applies to the SMSF sector, given the complexity of self-managed funds, especially on the legal side.
[Poor advice] is rife, even though there are some very good advisers out there. Also, I don’t think all trustees are necessarily taking advice from the right people. Invariably, just about everyone that I see has got some holes in their SMSF structure, strategy and estate planning, particularly when it comes to documentation, as I mentioned.
What do you see as the most pressing issues facing the SMSF space?
If the sector becomes over regulated, then you’re going to have only the bigger people that are prepared to play in the space, because the lesser ones won’t be able to. They won’t be able to afford it. I don’t think anyone should be precluded from being in the SMSF space.
However, it’s important to have the right advisers in the sector. So if the rules tighten and some advisers say, well, I’m no longer going to be in the [sector] anymore because the rules are too tight and because there’s greater onus on me to get things right, well I think that’s a good thing.
Also, although some say there shouldn’t be any rules in place in relation to trustee education, I have the opposite view on that. I think there should be some continuing professional development (CPD) requirements for SMSF trustees. I think [trustee education] goes a long way towards assisting the whole sector.
Taking that point further I believe that mandatory education would help trustees immensely. People in high positions of responsibility often have got to do it. Medicos have got to do CPD, accountants have got to do CPD, lawyers have got to do CPD. Trustees of SMSFs should also do CPD.
If you have a self-managed fund you have chosen to have sovereignty of your retirement saving affairs. In doing so you’re running a complex trust in a complex legal world to get the best results in relation to your retirement. You are in a position of responsibility. That position is highly regulated by legislation. Trustees must be well educated to properly discharge their responsibility. It follows that CPD education for trustees is a wise move.
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