SMSF

Trustee views on the future of SMSFs

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I have recently conducted a client survey for the submission being made on the “Phase Three – Structure” Issues Paper for the Super System Review (Cooper Review).  I was fortunate enough to obtain a good response rate to get some excellent insights into the views of SMSF trustees.  Many of the questions asked within the survey were to assist us in forming views on various issues raised within the Issue Paper.

I thought I would share some of the statistics gathered regarding the views of SMSF trustees, which I believe would be considered as a fair representation across SMSF trustees Australia-wide:

  • 79% believed it was important or very important that all trustees must be members and all members must be trustees.
    • the responses highlighted an importance of equal representation and decision making by all members of the fund
  • 58% believed that there should be an introductory (once off) minimum training or education of trustee obligations to be able to establish or operate an SMSF
    • 35% believe training and education should be ongoing
    • most responses indicated a preference to small groups or online training for trustees
  • 74% believe that the Regulator should impose mandatory training or accreditation for trustees who have a compliance breach within their fund
    • respondents felt the level of breach did need to be considered
  • An increase to the SMSF annual fee from $150 to $500 may be a deterrent for 42% of respondents.  23% believed it would not deter them from operating an SMSF
  • 70% of respondents felt they are not disadvantaged or neutral to other super funds regarding limitations to certain areas because of lack of scale
    • consensus that lack of scale not a driver, rather the choice and control that is offered within an SMSF
  • 35% felt that SMSF annual returns and the audit should be completed within 6 months after year end.
    • 44% believed that no change should be required to the due date of 11 months after year end.
    • 58% felt the compliance obligations for a SMSF should remain annually and if required more than annually, then it should be in electronic form (56%)
  • 46% were aware of the operating costs of their SMSF compared to other super structures
    • 26% remained unsure, predominantly with lack of information regarding alternative structures
    • 57% believe that their SMSF provides them with the most cost effective super structure, however this was not the key driver to operating an SMSF (rather choice and control)
  • 59% believed that only breached SMSFs should hand over the ‘cheque book’ via a custodian or external trustee arrangement
    • 84% believe there should be no change to the current requirement of trusteeship (i.e. not to include an independent trustee or SMSF administrator in a custodian role)
  • 64% believe SMSFs have been more vulnerable to corporate collapses such as Westpoint and that this vulnerability has been driven by commission driven marketing by financial advisers.
  • 84% believe that SMSF trustees should be able to use their own judgement regarding investing and the timing of investing (i.e. no imposed timeframes for investing).
    • control of investing is seen as a key incentive for using an SMSF
  • 80% believe there should be no restrictions as to what an SMSF can invest in (i.e. do not restrict the current availability of options for investment)
    • 71% believe assets should be able to be acquired from a member, including shares, managed funds and investment properties
  • 56% agree of strongly agree that SMSFs should be able to use leverage to acquire assets such as shares, property and managed funds.
  • 66% believe that there is a benefit to preparing an Investment strategy for the fund
    • the main reasons included that it provides for the trustees to review regularly, outlines clear objectives and adds structure that can be lacking with personal investing.
  • 71% place a high importance or some importance on the Approved Auditor role each year.
    • 45% believe the audit should be conducted annually, with 33% believing it should be done every 2 years
  • 66% believe SMSF advice should be restricted only to a fee-for-service model (for advisers)
  • 53% believe there should be no imposition to seek alternative arrangements when getting older (i.e. mentally incapacitated)
    • the consensus was that the health of the member was a greater issue than age
  • 61% believe that the current limitation to 4 members within in SMSF does not serve any purpose
    • 75% believe limitations should be around having only family members within an SMSF
  • 56% believe SMSFs should have a minimum balance, however the minimum range varied from $20,000 to $500,000
  • 43% believe there should be no default option for insurance within an SMSF

So, what do these statistics tell me?

There is a need to reconsider the current definition requirements for an SMSF.  The current limitations of 4 members appear outdated.  SMSFs are becoming more of a ‘family fund’.  Furthermore, the decision for most trustees is that SMSFs are established because they want to be in control of their own retirement destiny.  They want to be involved in decisions, including how to invest, when to invest and what is best for them.  Trustees appear happy to seek advice, but they are in control, cheque book and all…

I’d be interested to hear comments from readers about whether they were surprised by any of the responses outlined above?

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