Nick Bruining: Trustee tests and adviser crackdowns among big changes coming for self-managed super funds
There’s a massive shake-up coming for those with self-managed super funds. Here’s everything you need to know.
Financial advisers and others recommending the establishment of self-managed superannuation funds will be under the spotlight following recently announced changes to DIY retirement savings rules.
The changes will include a mandatory exam for new SMSF trustees, so-called rollover blocks and new and increased annual levies.
They were announced by Assistant Treasurer and Minister for Financial Services Daniel Mulino as part of a suite of reforms designed to protect members’ superannuation assets.
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By continuing you agree to our Terms and Privacy Policy.According to the Association of Superannuation Funds of Australia, nearly a quarter of the $4.7 trillion currently held in superannuation is invested via SMSFs.
Certified Independent Financial Advisers Association president Chris Young said the use of SMSFs for many investors was often inappropriate.
“It’s like being sold a four-wheel-drive when you have no idea and no intention of going off-road. You end up paying more in fuel and never using the features,” Mr Young said.
Many low-cost public offer schemes have most of the functional aspects of an SMSF, including direct access to Australian and international shares, exchange-traded funds and term deposits.
“You shouldn’t underestimate the safety of using an Australian Prudential Regulation Authority-regulated public offer super fund,” Mr Young said.
“You know the rules are going to be followed and, in many cases, there are compensation arrangements if things go wrong.”
Under existing superannuation laws, a member of an SMSF is legally required to be a trustee of the fund. In that regard, all members equally share the legal responsibility of running it.
The proposed rule changes include a requirement for new SMSF trustees to undertake a yet-to-be-released course and to pass a test before taking up the role.
In some cases, SMSFs have been established to assist with a form of domestic violence known as coercive control. In this case, the SMSF is used as a vehicle to obtain early and illegal access to money held in superannuation.
Under flagged changes, the Australian Taxation Office will be granted veto powers to block rollovers to SMSFs where it suspects foul play.
This will extend to requiring SMSF funds to have readily identifiable bank accounts and data-sharing arrangements between the ATO and the Australian Securities and Investment Commission to identify suspicious activities.
Financial advisers and others who recommend SMSFs have also been put on notice.
They have a legal obligation to act in a client’s best interest and, in some cases, recommending the establishment of an SMSF could be viewed as a conflict of interest.
“We have many highly qualified members with many years of experience, who have never recommended the establishment of an SMSF,” Mr Young said.
“Indeed, as people age and cognitive abilities decline, our members are actively winding them up and moving clients into low-cost schemes.”
Regulators will soon be able to identify those advisers who may be using SMSFs to enhance their own financial position to the detriment of a client’s.
“We are going to improve transparency by requiring newly established SMSFs to disclose any financial adviser involved in their establishment and by identifying advice fees deducted during the year,” Mr Mulino said.
ATO fees to establish an SMSF will also increase for the first time since 2013 and SMSFs will be required to contribute to the Compensation Scheme of Last Resort via an annual levy.
The controversial scheme is designed to compensate victims of some failed investments and poor financial advice where existing compensation, such as professional indemnity insurance cover, is inadequate.
It was originally expected to cost the industry $20 million, but thanks to the collapse of Shield and First Guardian, the latest figure is nearly 10 times that amount or $198m.
“The CSLR levy is a major expense for those in the financial advice industry and including SMSFs is one way of spreading the load,” Mr Young said.
“Needless to say, it’s another expense that can diminish the viability of operating an SMSF.”
Nick Bruining is an independent financial adviser and a member of the Certified Independent Financial Advisers Association
Originally published on The Nightly
