Accounting Evolution director Adrian Sibbick describes his introduction to the SMSF sector 18 years ago as a baptism of fire. He shares his views on the effect the super reforms have had on his activities to Darin Tyson-Chan and illustrates the impact technology has had for SMSF accountants.
How did your start in the SMSF sector come about?
I moved from Adelaide to Sydney in 1999 and at that stage hadn’t had any exposure to SMSFs. I applied for a job with a group that was looking for a corporate accountant involved mainly in franchised bookkeeping. The firm bought an accounting practice where the principal was retiring and he was servicing some SMSFs. I then had a hard and fast learning curve to get into the sector and then we grew really quickly. We grew from servicing four funds to 250 funds. So it was sort of a baptism of fire, but I really enjoyed the space so it was good.How did you get your knowledge up to speed on your rapid learning curve?The business the firm purchased was owned and run by an auditor and he’d been dealing with the SMSF space for quite a while and he had pretty good records. So to begin with it was just a matter of me following what he was doing and complementing that with some research of my own. I did it the hard way. They didn’t even have an SMSF guide then, so I began with the Master Tax Guide and the small section on SMSFs, and then every time an SMSF course popped up I went along and had a look.
What did you like about SMSF clients when you began dealing with them?
I’ll answer this from two perspectives. From a practice management point of view they always had money to pay their bills and that’s really important. From my own perspective the people that were using SMSFs in the 1990s and 2000s were educated people, which meant they had a really good understanding of what they wanted to do and how they wanted to do it, and so it was always refreshing to deal with people like that. The other thing I like about SMSF clients is how engaged they are. If I see a client who is in an industry fund or retail fund, I question how many times they actually look at their balance or how adequate their life insurance cover is. They never look at it. It comes in an envelope, they put it away in a filing cabinet and it never gets touched. Whereas when you’re dealing with SMSFs, most of those clients you’re having to go through what’s happened during the year, the effect on their fund balance and making them aware of what those accounts look like. That’s what was really good from an adviser point of view and that’s what I really enjoyed about the sector.
What services do you offer SMSF clients?
The business has an accounting side and a financial planning side. So we provide accounting services for SMSFs and if the trustees don’t use a financial planner for investment guidance but are looking to, we can service them on that score or refer them to an external planner. We also provide advice around structuring, advice around property purchases and generally assisting people how to run their own money. We engage the services of a solicitor in the city who handles all of our clients wanting to use limited recourse borrowing arrangements. We outsource the audit function.
How have the super reforms influenced your practice?
The reforms haven’t changed how we do things or why we do things. It has forced us to look more holistically at the client’s situation beyond their SMSF. For example, we’re having to ensure our clients haven’t got a defined benefit scheme in place. A lot of people in these schemes aren’t aware they’re getting proceeds from them, which means we won’t be aware of it either. There are also situations where a client is receiving a reversionary pension because their husband has died and they have an SMSF. We’re really now tracking those situations because that’s going to be a big killer for a lot of these people. We’ve realised we can control what’s inside an SMSF, but we now have to control what’s happening outside the fund. So it’s changed the way we think.
What’s been the hardest part of servicing clients in respect to the reforms?
The hardest part for us has been having to explain to those clients that are near their transfer balance cap limit not to take all of their money out of super, because that’s their initial reaction. They feel they’re now going to be penalised by the 15 per cent tax applied to the pension account. So you then have to explain to them having money in super is still more tax effective than holding money outside super. The reforms have also changed accountants’ mentality around SMSFs. A lot of them are now starting to set up family trusts to accommodate overflow SMSF wealth into a family trust and investments outside of super. We’ve probably set up about a dozen family trusts in the past 12 to 18 months for this reason alone. But the biggest thing about the reforms is that they’ve made people think about their funds again because they’re now starting to concentrate on what they can and can’t do.
I think you’ll see the big firms getting stronger as a result of the reforms.
Have the reforms affected many of your clients?
Only about a handful of our clients have been affected by the reforms. In the future there might be a few more affected. This in itself has made it difficult for us. When you consider we have to educate ourselves and understand all of the changes, but when it comes down to it we might only have two clients that are affected, you have to then look at how many man hours we have chewed up to get a full understanding of what that legislation looks like. There was such a short time frame involved as well, which meant we had to take resources away from other areas to skill ourselves up really for not much of a result in the short term, however, it’s always good in the long term to make sure we’ve got a better understanding of what’s going on.
Will having to address issues like what to do with monies that exceed the SMSF balance limits enhance or detract from the importance of being an SMSF specialist?
I think you’ll see the big firms getting stronger as a result of the reforms. So you’ll probably find there will be mergers in the industry where firms will end up being genuine specialists and they will only have specialists working on SMSFs. Currently you could speak to 1000 accountants and they would all have a hand in SMSFs, but I think that’s going to change pretty soon. If the changes in regulation continue, you’ll just start getting bigger specialist groups.
What difference has technology made to your practice?
One client experience sums it up. I had a client I would see once a year and they would provide me with two of the biggest tubs of shareholder information you’ve ever seen in your life and I had the biggest spreadsheet to manage it all. At one point he was paying us $12,000 in compliance fees because it was a massive job. The use of Class administration software took that back to $5000 within about two years. And it’s not just Class, it’s a range of automated systems contributing to improved efficiency that has meant the amount of time we’re spending doing compliance work has reduced dramatically, which in turn means we now provide more advice. So it has allowed us to move away from being compliance providers to being advice providers. For us it’s been a very big change.
What’s the biggest change you’ve seen in the SMSF sector?
The biggest change has been the ratification of the borrowing rules. It meant people could borrow to buy property in their SMSF. What might happen as a result is the new $1.6 million transfer balance cap limit, especially in the Sydney market, is going to get smashed in a few years as the market continues to grow. So people who made really good choices on property are now feeling the benefits of those decisions. So we’re really going to see this cap challenged in the coming years all because those borrowing rules were brought in.
If there was one thing you could change about the sector, what would it be?
It would be to get rid of all of the accountants operating in the space who are servicing less than 30 SMSFs. I would also like the ATO to be more proactive in reviewing these accountants because I think they might not be providing the correct service to their clients. I’d like to see the ATO have better control over the contribution strategies, defined benefits, and have better historical SMSF records. If we want or need to look at what people have contributed in the past, those records aren’t available anywhere if the previous accountant has died or wasn’t doing the right thing. So I’d like to see the ATO set up registers that are complete, online and available to us to allow us to make better decisions. I’d like to see the regulator take an interest in tax agents still servicing SMSFs, but having no interest in what they do and how they do it as well because I think it would be better for the marketplace.
What’s the biggest challenge facing the sector in the coming year?
It will be how accountants manage the licensing provisions in regard to the cost of providing statements of advice more often for things like pensions. Also the interaction with individuals who are nearing the balance limits and decide they want to withdraw all their money from the super system because they don’t have a good understanding of what it means when they have that amount of money sitting in their SMSF. The May budget next year might also present a challenge as to see how effective the industry fund lobbying efforts have been to make SMSFs look less attractive.