Watch out for SMSF focus in Abbott review

SMSF technical expert and columnist for The Australian newspaper
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At some time in the next 12 months, the Abbott Government will announce a review into the financial services industry. It may be that the review’s terms of reference will give it scope to look at how SMSFs are regulated and decide that some changes should be made.

Unless the ATO significantly alters its approach to regulating the super laws, I believe that at this point in time moving away from the Tax Office would be making change for change’s sake.

Everyone involved in SMSFs should keep a close eye on the new inquiry into financial services. You’d be amazed how important changes can happen accidentally, particularly given recent noise made by one of the regulators – the Australian Securities and Investments Commission (ASIC).

ASIC research

ASIC recently released another paper about the SMSF sector, which sends a clear and unambiguous signal that it intends to be involved in the regulation of self managed funds.

At present, ASIC’s role is limited to regulating the gatekeepers – that is, anyone who recommends an investor uses an SMSF or invests SMSF money in particular financial products such as insurance, shares and managed funds.

Under the super laws, APRA’s job is to be a prudential regulator. That is, its job is to make sure investors’ money is as safe as possible. Its job is not to provide 100% guaranteed protection but to put in place systems and processes to minimise the potential for loss.

The Tax Office’s regulatory job under the super laws isn’t to be a prudential regulator but to make sure SMSF trustees adhere to all the various super laws and regulations.

From time to time, there is discussion about whether the ATO should be the SMSF regulator as well as the tax collector. The concern about the ATO’s potential conflict of interest between its super law responsibilities and its tax collection obligations assumes ATO personnel will always prioritise collecting tax rather than giving equal weight to both legislative responsibilities.

In the 14 years that the ATO has been regulator of SMSFs, I have rarely seen any actual justification for this negative view.

Those who believe the Tax Office is conflicted speculate about whether we need a specific SMSF regulator or perhaps ASIC should take over the job.

ASIC’s interest in the SMSF sector stems from the Trio saga that saw many Australian investors – including a small number of SMSF investors – lose money because of fraud.

ASIC has reviewed how well licensed financial planners provide advice when recommending SMSFs. Overall they found there’s room for a great deal of improvement.

It also now conducts fit and proper assessments on SMSF auditors and holds a register of all the auditors it has issued an SMSF auditor number (or SAN) to. Each year your fund needs to formally appoint an SMSF auditor. From 1 July 2013, you can only appoint auditors who have an SAN. I suggest you check the ASIC SAN register on its website – www.asic.gov.au. (At the moment, you need to search for the full name of the auditor to make the search engine work correctly.)

ASIC’s SMSF cost research

Earlier this year, ASIC commissioned an actuarial firm (Rice Warner) to research the costs of running SMSFs. This is designed to help prospective SMSF investors work out if an SMSF will be cheaper than other super funds. And as Paul Rickard found on Monday, most SMSFs do a lot better than the mainstream funds.

But I think the ASIC paper is really useful for a different reason. I compared the costs we pay to run our SMSF with what’s available in the marketplace. I’m pleased to say I’m happy that my costs are very low!

I’m glad I did this work because it confirmed what I expected.

I suggest all existing SMSF investors should use this document in the same way.

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.

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