With accountants the main advice point for SMSFs, business opportunities abound. but proceed with caution, says Belinda Robinson.
Business opportunities abound for accountants to help clients who have self-managed superannuation funds (SMSFs) to gain flexibility and control over their investments. But an SMSF is not for everyone, so it is important to ensure that advice given is both appropriate and within the scope of licensing especially with the Tax Office and ASIC watching closely.
Speculation that changes to superannuation rules would reduce the popularity of the SMSF has been unfounded. SMSFs increased in number to 320,003 at June 2006, controlling a total of $209.9 billion in assets. Net new SMSFs tallied about 2000 per month, a fall from 3000 per month a year before. Average fund balances had grown from $578,000 to $653,000.
More than half of all those polled in a recent survey by Investment Trends cited their accountant as their main source of professional advice for SMSFs. Though accountants have fallen as the proportion of those instigating SMSFs, they are still the biggest group of professionals (employed by 78 per cent of funds) according to the survey.
Over the past 18 months, both the Tax Office and ASIC have made clear statements on their interest in the conduct of SMSFs and in the nature of advice. The Tax Office was given increased funding in the 2006 Federal Budget for compliance activities. It has announced it will be reviewing 10 per cent of new SMSFs each year as part of its increased audit activities, and requires mandatory auditor contravention reports in a funds first year.
ASIC has previously warned it would be looking for instances when accountants had inappropriately advised the establishment of an SMSF, or when accountants have provided financial services advice not covered by the exemption under Regulation 7.1.29 of the corporations regulations.
Recognising both the value of SMSFs and the importance of the accountants role both in assisting clients to determine whether they are appropriate to their circumstances, and also for ongoing advice, CPA Australia has published an electronic guidance note for advising on SMSFs.
The three main areas of focus in the guidelines are:
the factors members should take into account when providing advice to clients
the kind of advice members can provide to clients if they are not licensed under the Financial Services Reform Act (FSRA)
the legal requirements for licensed members who are providing advice to clients.
Costs and the amount being invested are the main factors typically taken into account when advising on SMSFs, with ASIC and the Tax Office commenting on low account balances and the costs of running an SMSF. A low account balance is not necessarily inappropriate, but will mean there is a greater onus on the adviser to demonstrate why it is appropriate. On the other hand, just because a client has a large superannuation holding does not mean that an SMSF is automatically the right structure for them.
Other key features such as control, flexibility of investments, and succession planning should also be considered. For an SMSF to be part of an effective financial strategy, clients must be prepared to take control and be actively involved in their own financial affairs. Clients must understand the legal and tax obligations associated with establishing an SMSF. And they must be responsible for the decisions about where their funds are invested.
Training and licensing
The guidance note does not purport to teach a novice about SMSFs, but is intended as a checklist for members in public practice. A list of references and some training courses from CPA Australia are included. The next SMSF training courses will be offered in April 2007 via continuing professional development. For members seeking recognition for their knowledge and skills in SMSFs, CPA Australia offers accredited assessment in SMSFs. Contact the CPD hotline on 1300 727 000.
It is essential to recognise that being PS146 compliant is merely a prerequisite to licensing, whether holding your own AFSL or operating as an authorised representative.
The legal requirements for providing advice by members who are licensed are discussed in the paper.
Table 1: if you are not operating under a Financial Services Licence:
You can
You cannot
Recommend that your client establish an SMSF
Recommend a super fund other than an SMSF
Recommend a client switch into another type of superannuation fund
Provide factual advice about the value of consolidating super assets into a single fund
Recommend transferring assets from any financial asset to another
Recommend closing a super fund
Where the client controls, or will control the management of the SMSF, you can process the transfer or rollover of funds into, or out of, an SMSF, when the decision to transfer or rollover the funds has already been made
Recommend a client transfer or rollover funds to the SMSF
Provide advice about administration and operational issues including how to establish an SMSF, the addition of new trustees and members, and valuation of the fund assets
Give any advice that relates to particular assets of the SMSF, including the disposal or acquiring of financial products or classes of financial products
Prepare or review an investment strategy for an SMSF
If the recommendation is reasonably necessary to, and an integral part of, advice about the establishment, operation, structuring or valuation of the fund you may be able to recommend that your client join an SMSF
Provide advice for the sole purpose of ensuring compliance with super legislation such as in-house asset rules and modifying contribution levels due to changes in the super guarantee level
Recommend the client change their contribution level or stop making contributions to an existing fund and instead contribute to the SMSF or change the investment options of an existing fund
Recommend the clients employer cease making super guarantee contributions to another fund and commence making contributions to the SMSF
Provide a recommendation to a client on whether they should acquire or dispose of an interest in an SMSF. However, the client must be, or be likely to become, a trustee, a director of a trustee, an employer, sponsor, or in control of the management of the SMSF
Advise the client on specific investments that should be acquired or disposed of
Provide financial product advice on any other superannuation
Advise on insurance risks associated with changing superannuation funds
Provide advice about insurance within a clients super fund or any other fund
Provide factual information about the tax treatment of contributions to superannuation and the level of the compulsory superannuation guarantee
