Key Messages of Phase Three Submission

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It has been a busy last week or so with the SPAA National Conference in Melbourne and also finalising my submission on Phase Three – Structure of the Super System Review (Cooper Review).

The conference has provided me with a range of fresh ideas for the website which I will endeavour to share with readers over the coming months.

With submissions now closed in respect to Phase Three of the Cooper Review, I have outlined below the key messages delivered in our submission:

  • We endorse the views and position of the SMSF Professionals Association of Australia (SPAA) in respect to their submissions for Phase Three – Structure.
  • We believe the SMSF regulatory framework is “not broken”, however it is recognised that some improvements are required to uphold strong compliance of the sector as the number of SMSFs (and its membership) grow.
  • The definition of a SMSF should have a greater emphasis towards being a ‘family based’ fund, rather than simply just ‘self managed’ and available to a broad range of diverse membership options.  In addition, we believe the current limit of members to four (4) serves no purpose and should be adjusted upwards or removed altogether.
  • There needs to be a continued focus on increasing professionalism by all participants within SMSFs, including a need for greater recognition that SMSFs are a specialised subset of the superannuation industry.  This is in accordance with recommendation 9 from the Ripoll Inquiry for financial advisers.
  • To retain the current membership requirements of an SMSF that all trustees are members and all members are trustees, as it promotes active involvement and responsibility for all participants of a fund.
  • SMSF growth is driven by individuals wanting to take “control” over their decisions in retirement and investment.  This self interest approach is healthy for the sector as people become more actively involved in the decision making processes about investment and their retirement.  There does not need to be any custodian or external trustee arrangements imposed on SMSF trustees.
  • There needs to be a continued awareness to trustee responsibilities (education) to improve literacy without making education a mandatory obligation for new entrants or existing SMSF trustees.  However, we do believe that mandatory education could play an important role for trustees that breach their compliance obligations (subject to the severity of and involvement in the breach).
  • Consideration needs to be given to the current trustee options within an SMSF as there appears to be a significant disproportion of individual trustees as opposed to corporate trustees.  Costs appear to be a deterrent in the establishment of a corporate trustee, along with a lack of understanding regarding the benefits of this trustee structure.
  • There is a need to obtain more data regarding the SMSF industry including understanding the changes that occur in the initial years of an SMSF.  This will provide a better basis for understanding reasons for funds that remain in a low balance and single asset environment.
  • The current timeframe in which to complete the SMSF Annual Return appears to be too long to provide meaningful statistical data on the industry (against APRA Regulated Funds); however it cannot be seen to be adding cost to the ongoing expense ratio of a SMSF.
  • There should be no mandatory minimum balance required to establish an SMSF.
  • Fund trustees should be required to prepare a written investment strategy, as it provides structure to investing and assists to assess the fund’s overall objectives.  A greater focus needs to be provided on obtaining investment strategy ‘advice’ (initially and ongoing) to assist SMSF trustees with their investment decisions.  This may be through a licensed adviser or through readily acceptable asset allocation information via government agencies (education).
  • The creation of a SMSF government website, to deliver information to prospective and existing SMSF trustees on items including (but not limited to) educational content on investment and investment strategies, regulatory information, and the role of different professions within SMSFs (e.g. SPAA), etc.

It will make for interesting reading over the next few weeks once submissions are made public on the Super System Review website.  This phase was sure to draw the greatest publicity and most differing views, many of which will be put forward in self-interest (e.g. SMSF vs. retail vs. industry funds).

It will present a challenge and an opportunity for a the SMSF Professionals Association of Australia (SPAA) to see if it can ‘flex some muscle’ against the views of other industry and retail based super fund associations (ASFA, AIST, etc).  Issues around minimum balances and mandatory trustee education are only some of the things you will expect to be put forward in an attempt to create barriers to entry for new SMSF participants.

It was however openly recognised at the SPAA conference by Minister Bowen, and Jeremy Cooper that the statistics of the sector suggest that mud previously thrown shouldn’t stick.  It was refreshing to hear Jeremy talk about a super system built around ‘self interest’ and how SMSFs could play a key role in this long-term.

It is now an opportunity to present a new image for SMSFs – one that shows strong governance,  superior investment returns and lower fees.  Quite simply, let it continue to prosper as the retirement vehicle of choice for many Australians.



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