Professionals / SMSF / Trustee education

Reflecting on the year that was 2010…

Tis’ the season to reflect on what has been a big year for self-managed super funds and the financial services industry as a whole.

The year started with a bang, with Phase Three of the Super System Review on Structure including Self Managed Super Funds.  This phase of the review was arguably the most debated with industry funds and the retail sector pushing for mandatory education of trustees, amongst other things.  The statistical summary ordered by the Chair of the Review, Mr Jeremy Cooper seemed to lay to rest many of the myths around people abusing the privilege of an SMSF.  The final recommendations noted that the SMSF industry was robust and in fairly good shape.

With the final recommendations handed to government on 30 June 2010, the question remained when the government would look to action any of these recommendations (I say “any” instead of “many”, given the handling of the Henry Tax Review, where the government announced to implement 2 out of 138 recommendations).

It is good to see however, the industry and regulator starting to already address some of these key recommendations, including the introduction of the ATO member verification system to rollover monies from an APRA regulated fund.  We are also seeing industry recognition of the need to increase competency requirements for advisors, accountants and auditors within this specialist superannuation field (and hence my decision to create The SMSF Academy).

NB. Minister Shorten is expected to announce this week their response to the Super System Review recommendations.

From the Ripoll Enquiry came the announcement of the Future of Financial Advice reforms.  FoFA as it is now more commonly known, also integrated some of the key recommendations from the Cooper Review, including the removal of the Accountant’s Exemption.  The basis for these reforms are to improve the trust and confidence of investors (including SMSF trustees) in the financial planning sector, and are designed to tackle conflicts of interest that threaten the quality of financial advice provided.

This week has seen the first meeting of the advisory panel to tackle the FoFA reforms.  It will be interesting to see how much we actually hear on some of the key issues, with the panel members being asked to keep discussions strictly confidential.

It was pleasing to see recently a common sense approach by the Accounting Professional and Ethics Standards Board (APESB) to defer the introduction of APES230.  This standard was to impose fee-for-service only for financial planners that were members of a professional accounting body (CPA, ICAA, NIA) from 1 July 2011.  This has now been deferred, subject to the direction of FoFA.

Australia’s Future Tax System review, chaired by Dr Ken Henry turned into arguably the “fizzer of the year”.  From a super perspective though, the government announced some important reforms around a ‘fairer super system‘, including the progressive increase of super guarantee contributions to 12%.  The catch here of course for the super industry is we are never forever entwined with the resources sector and the super profits tax.

As a result of these key announcements, the Federal Budget was a low-key affair, with reiteration of the many announcements about a fairer super system the week before.

The year also saw a federal election.  Whilst there was no change to government, there was a promotion for the very well-regarded Minister Chris Bowen into the key portfolio of immigration from his superannuation and financial services post.  There was some trepidation about the appointment of former Secretary of the Australian Worker’s Union (AWU) and Australian Super (industry fund) director, Mr. Bill Shorten.  Time will ultimately dictate the legacy he leaves behind on the superannuation and financial services sector.

I commented earlier this year in a meeting with Jeremy Cooper, that 2010 was going to be the ‘year of the gear’ with SMSFs.  He tended to agree… Limited Recourse Borrowing inside a SMSF has certainly started to take hold, predominantly from two key factors,

  1. the reduction in the concessional contribution caps; and
  2. our country’s love affair with property.

The date, 7 July 2010 is now an important one as we saw the introduction of section 67A & B into the SIS Act, with s.67(4A) being repealed.  These changes have certainly had an impact on how these arrangement are now structured, with only a single acquirable asset being able to be held on trust.  The issue of personal guarantees was resolved with them now being allowed, and on a positive note, the ability to refinance will certainly make the lending market far more competitive.

I actually think 2011 will continue to be ‘gearing heaven’ for SMSFs and limited recourse borrowing arrangements.

In addition to the SIS Act changes to limited recourse borrowing, the government also announced reforms to make these arrangements a financial product and allow only those advisers with a derivatives license to be able to recommend such arrangements.  There were many submissions made to Treasury about concerns with the draft regulations, from professional bodies, banks and other financial services institutions and businesses.  When an election was called, this fell off the radar, but I suspect will resurface again into the new year.

The ATO continued to deliver more rulings and interpretive decisions in the area of SMSFs, including the issuing of:

  • TR2010/1 – super contributions,
  • SMSFR2010/2 – addressing the issues about remaining a SMSF through the appointment of an Enduring Power of Attorney; and
  • many ATOIDs covering limited recourse borrowing arrangements

Excess contributions tax continues to be the ‘white elephant in the room’ for government.  With the halving of the contribution caps last financial year, there is expected to be more than 100,000 excess contribution tax assessment notices issued by the ATO. for FY2010.  Lobbying on this issue to date appears to have fallen on deaf ears…

Personally, 2010 also presented a change in direction for me as I now focus on the delivery of The SMSF Academy to provide education and training to both trustees and advisors.  We are achieving small but significant milestones with its development, with the website to be up and running in mid-February 2011.  We intend to have our first monthly SMSF eCPD update in February 2011 as well.  Click here to register your interest to keep up to date with future developments.

A reminder that if you haven’t completed either or trustee or advisor surveys, then we encourage you to do so by 4pm this Friday.  The winner will  be announced next Monday.

2011 looks to be as exciting and challenging as 2010… I look forward to continuing to deliver my views and strategies regarding issues affecting SMSFs.

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