thedunnthing

Has the Government stemmed the flow of SMSFs?

February 23, 2012 By thedunnthing Leave a Comment

The latest quarterly SMSF statistics released by the Australian Taxation Office for the December 2011 quarter show some slowing in the growth of the self managed super fund market. The question must be asked:

is this a result of SMSFs reaching saturation point; or
is it a result of the lack of Government direction and loss of consumer confidence in retirement savings policy?

The latter issue around loss of confidence in superannuation and investment markets was a key theme addressed in the SPAA/Russell research conducted, which produced the annual “2012 Intimate with SMSFs” report.

New establishments for the December quarter were 5,915, the lowest number of setups since statistics have been published on the ATO website (back to June 2008). On an annualised basis, the 2011 calendar year saw 33,114 new funds established, more than 5% more than the previous year. When looking at net establishments, this percentage is significantly higher (67% net growth) as we have seen 2,769 funds wound up during 2011.

Total fund assets is again around the $400 billion mark, with growth in both cash held by SMSF trustees and listed shares – the growth in shares may have been a combination of ASX movement and some trustees seeing ‘value’ in the market, both from a growth and yield perspective.

Not surprisingly, we are seeing the most growth in assets in Western Australia, 10.4% of total assets – up from 8.8% back in June 2004. It doesn’t seem like much, but when the industry was $127 billion in 2004, this represented $11 billion, today this amount is more than $41.6 billion.

The data on younger entrants was still fairly strong for the quarter, 35.1% of new members were under the age of 45. As I have previously raised in my both presentation at the SPAA conference and also on my blog, many advisers will need to re-think how to deliver education and advice to a younger, more engaged, and web-savvy group of SMSF members. The scaled advice opportunity in my view presents an exciting time ahead for the SMSF industry.

Details of the December 2011 quarter SMSF statistics can be found here, http://www.ato.gov.au/superfunds/content.aspx?menuid=0&doc=/content/00309172.htm&page=1&H1

These latest growth statistics may just be a ‘blip’ on the radar, so we will continue to watch these SMSF statistics with great interest.

I would be interested in your thoughts whether you think these statistics are a result of SMSFs having peaked or a consumer confidence dropping due to Government using superannuation as a political football?

Filed Under: ATO, SMSF, SMSF Compliance, Statistics, Trustee education Tagged With: ato, ato smsf, australian taxation office, new super fund establishments, self managed super fund, self managed super funds, smsf establishments, smsf statistics, SPAA

Limited Recourse Borrowing to again become a financial product

February 21, 2012 By thedunnthing Leave a Comment

As we move closer to the implementation of industry reforms regarding the provision of financial advice, Treasury last week has added to the pile with the re-issuing of draft Corporations Amendment Regulations to provide that limited recourse borrowing arrangements as allowed under superannuation law are financial products.

These reforms were previously announced back in March 2010, with industry consultation in June of that year. In light of the submissions previously made, Treasury has substantially revised these draft Regulations. However, it remains a clear policy objective of Government to move these type of borrowing arrangements into the financial consumer protection framework as there continues to be concerns of targeted activity and inappropriate advice to acquire property using borrowings.

Under these Corporations Act 2001, those providing advice in respect to the limited recourse borrowing arrangement established in accordance with s67A and s67B will be required to have an Australian Financial Services License (AFSL). For those simply providing credit facilities, they are not caught by these regulations.

To be able to provide advice in this area, an AFSL that allows for advice on derivatives or securities meets the requirements to also cover limited recourse borrowing arrangements. This poses an interesting question for many accountants considering their licensing options with the proposed ‘conditional license’ to be implemented to allow for advice likely to be under a ‘class-of-product’. All of the current limited licence solutions won’t provide for them to deal in securities unless they met additional competency requirements of the AFSL holder (and paid the additional licensing cost as well).

Who issues the financial product?

A previous confusion of the regulations related to the issuer of the limited recourse borrowing arrangement. As a borrowing arrangement involves numerous parties, it is difficult to determine which party is the “issuer”, or when the product is “issued”. These concerns posed difficulties for Government and the industry in determining which party, if any, is obliged to disclose information required under the corporations legislation.

These changes now clarify that the limited recourse borrowing arrangement is “issued” when a person enters into a legal relationship that sets up the arrangement and that each party to the arrangement is an “issuer” of the product. It is unclear from these regulations whether related party lenders get caught under these arrangements as an issuer of a financial product?

When do these changes commence?

These proposed regulations would take effect three months after the legislative instrument was exercised by Government.

As we close in on the two-year review period proposed by the Cooper Review with limited recourse borrowings, in my view the Government can only start the clock ticking once these laws take effect. With:

changes to the definition of limited recourse borrowing arrangements from 7 July 2010,
details of the final ruling SMSFR 2011/D1 expected in May 2012, and
changes to make these arrangements financial products

surely the Government’s assessment to date would be baseless? or maybe… just maybe once resolved, consumers and advisers alike will have a framework in which to work with moving forward!! Let’s hope so.

Read the details of the Treasury Exposure draft.

Filed Under: Announcements, Limited Recourse Borrowing Arrangements, Professionals, SMSF, SMSF Compliance, SMSF Strategy Tagged With: amendment regulations, competency requirements, Corporations Act 2001, financial product, industry consultation, LRBA, section 67A, self managed super funds, SIS act, smsf, smsf borrowing, smsf limited recourse borrowing arrangements as financial products, smsf property

SPAA conference challenges all professionals to consider the future direction of SMSFs

February 20, 2012 By thedunnthing Leave a Comment

A record number of professionals (1,185) attended the SMSF Professional’s Association of Australia (SPAA) National Conference, arguably Australia’s leading superannuation and financial services conference. Recognised for the quality of its speakers and technical content, this year it was the discussion and focus on the future direction of the SMSF industry and behaviour of trustees that provided advisers with the most ‘food for thought’.

The conference saw the release of the 2012 “Intimate with Self Managed Superannuation” report prepared by SPAA and Russell Investments, which showed levels of insecurity and uncertainty of SMSF trustees due to the global financial crisis. Statistics also supported the continued use of mainstream media, websites and other publications to educate and seek advice regarding SMSF and investments, rather than seeking professional advice. All this appears to be consistent with the broader views held by Government that people are looking to single-event or piece-by-piece advice when dealing with superannuation. Rather than taking a wholistic approach to providing advice, businesses will need to consider how they are going to provide scaled advice solutions to existing clients, but more importantly to target new clients. Combining the high use of mainstream media, with the ‘controller’ behaviour of SMSF trustees, many of us within the profession need to re-think how to best deliver our services in the future. My session on Day 1, in how to use social media to attract new business, showed how powerful the use of web and mobile technology has become and how it can be used to help deliver education and ‘coaching’ to SMSF trustees.

Well known demographer, Bernard Salt further painted the picture of Australia and SMSF members with his presentation on “New Market & New Customer Behaviour For The Next Decade.” It was an amazing insight into changes in our population landscape, key services and cultural change, all of which us as SMSF professionals needs to consider in providing advice and financial services into the future.

The conference attendees eagerly awaited the address from Minister Bill Shorten’s at lunch on the final day, especially in light of the full-page advertisement taken out by CPA Australia and the ICAA regarding the proposed new licensing regime for accountants to advise on superannuation and SMSFs. There has clearly been a line drawn in the sand by both Government and two (of the three) major accounting bodies, with details of these new reforms including the auditor registration to be released in the next fortnight (as announced by Minister Shorten). We wait with interest to see the ‘devil in the detail’… These proposed reforms meant the conference session on this topic was overflowing with attendees who are trying to better understand the options available to them.

The proposed licensing regime is expected to impact as many as 10,000 accountants that may require some form of conditional license. Add to this a further 7,000 – 10,000 accountants requiring ASIC registration to be an SMSF Approved Auditor, the next 6-12 months will be both challenging and game-changing for the industry. ASIC chief, Greg Medcraft provided some insight into this advice issue, outlining advice being provided will most likely be at the ‘class-of-product level’. At this class-of-product level, accountants with the relative experience could provide advice on things such as:

SMSFs, including recommending an SMSF if it’s in the client’s best interest;
superannuation, broadly at the class-of-product level;
general insurance quotes broadly;
life insurance quotes within a client’s super fund at class-of-product level; and
basic deposit products at class-of-product level

The two and a half days provided some great technical content and updates on emerging issues impacting SMSFs. Some of the key themes I took away from the the conference were:

The need to appropriately manage life and estate risks. With a significant amount of wealth within the SMSF sector, it is critical to ensure appropriate succession has been built to deal with funds assets within incapacity and death.
Limited recourse borrowing whilst growing in popularity, has many intricate issues that require specialist attention across a range of professions including legal, advice and banking; Further licensing issues announced before the conference only highlight the importance of understanding what you’re doing when dealing with these types of investments;
The active advice role required within pension phase, including managing longevity risk; and
Recalcitrant trustees are not popular with the ATO and are seeing the full face of the law!!

Twelves months seems like a long-time in the profession at the moment, so it will be interesting to see where the industry is at for the SPAA conference when professional converge in Melbourne in 2013.

Watch interviews with speakers from the 2012 SPAA National Conference

Did you attend the SPAA conference? I would love to hear your thoughts on sessions you attended…

Filed Under: Opinion, Professionals, SMSF Tagged With: australian taxation office, CPA Australia, Financial services, intimate with self managed superannuation 2012, russell investments, self managed super funds, smsf, smsfs, SPAA, spaa conference, spaa russell intimate with smsfs, spaanc2012

SMSF Quarterly Wrap – 2 CPD points for $99?

February 8, 2012 By thedunnthing Leave a Comment

After a successful live webinar last week with the SMSF Quarterly Wrap, I am pleased to announce the release of this webinar on our new self-paced training platform, which includes a CPD quiz to test your knowledge from the session to gain either SPAA or FPA CPD points.

http://thesmsfacademy.com.au/webinars/

Topics within this webinar include:

* Impact of Mid Year Economic & Fiscal Outlook
* Changes to definition of SMSF and trustee remuneration
* Draft legislation on refund of excess contributions tax (ECT)
* Removal of trading stock exception
* ATO Rulings, & IDs
* NTLG discussion minutes; and
* other recent superannuation announcements

This style of delivery will become a regular feature of The SMSF Academy training as we look to build a variety of content for you to access on self-managed super fund topics. Future webinar activity will include both video and audio content, along with assessment to gain CPD points with either SPAA or the FPA. The SMSF Academy’s online training has the highest number of CPD points per hour for web-based training.

Over the next few months, we will be adding a new member forum to discuss issues from the monthly webinars, with a further live “Q&A” webinar to work through questions and issues in more detail.

Find out more about about the benefits of becoming a member of The SMSF Academy, http://thesmsfacademy.com.au