Stuffing as much money as possible into your SMSF has been the main goal for pre-retirees since 2007, when Reasonable Benefit Limits were abolished. And now the rules have just changed again. While the details of the measures in the budget still need to become legislation, it’s likely that whichever party is in power, these changes are going to happen.
So where does that leave accountants? Especially those with SMSF clients?
For instance, the $1.6 million cap means that something needs to be done with individual balances over $1.6 million (for the individual, not the whole SMSF). That might mean rolling back into the 15 per cent environment, or it might mean taking the money out completely. Who knows at this point!
The real issue though, as I see it, is that super is now limited in its ability to provide a dream retirement for your clients, which means that they are going to be looking more broadly, rather than just super. For financial planners, this isn’t too bad. Planners already talk about ‘total wealth’ for clients and how to manage that most effectively for retirement. For accountants though, especially those who are planning to operate under a limited license, these changes pose something of an issue.
Your clients are going to need you to talk to them about more than just their super, because their retirement plan will involve more than just their super. It has, in fact, been the case for years that the average SMSF trustee has the same investible assets outside their SMSF as in it, but given the lovely SMSF balances, it just didn’t really matter. There was enough to talk about already. Now, however, that is all going to change. And licensed accountants are going to need to be ready to help their clients through the maze that is retirement planning.
So what are your options?
1 – Decide this SMSF caper is way too hard and opt out entirely. Not much more needs to be said about that option.
2 – Don’t get licensed, continue to do administration only for SMSFs. This is now looking even less appealing than it was before! These changes may be the last straw for non-licensed accountants, encouraging some to leave the SMSF space entirely… back to option 1!
3 – Use the limited license to give advice regarding your clients’ SMSFs. As noted above, the issue here is that you will only be giving advice on a shrinking component of your clients’ asset base.
4 – Operate under a full license and transition to offering a full advice service to your clients.
I think options 1 and 4 are the only long-term solutions. There’s no point being ‘half pregnant’, as they say. Becoming fully licensed is a big change, and the obligations are high. Having said that, financial planning businesses are being valued at prices three times that of accounting businesses, so it's worth thinking about. And your clients will love you for it. Who wouldn’t want to have their financial planning needs taken care of by their accountant?
And how does this affect pure planners? Well, it’s going to get tougher. You will have to clearly, and I mean clearly, articulate how you add value to your clients. And why they should use a specialist planner rather than getting all their financial services from their accountant.
I think there is room for both models, and that the best advisers and accountants will actually benefit from all this change and uncertainty. As they say, with change comes opportunity. And there’s certainly lots of opportunity around right now!
Sarah Penn, director, Mayflower Consulting