Working within the Colonial First State (CFS) FirstTech team since it was established in 1999, executive manager Craig Day believes he’s seen it all. He tells Krystine Lumanta why he likens SMSFs to Shakespeare plays and why there will be a few bumps in the road before the new super changes settle down.
How did you come to be involved in the SMSF sector?
I did a science degree with a major in fluvial geomorphology – think coastal and inland river management. After finishing university, I went travelling for three months but arrived back in Australia two-and-a-half years later completely broke and in need of a job. A friend told me about a customer service role where they worked at; a company called First State Fund Managers. I had no idea what a fund manager did, but I applied for the role and they gave me the nod ahead of the 15 other economics graduates who applied. That was 19 years ago and I’m still here. My interest in SMSFs started on my first day in the newly established FirstTech team in 1999. My then manager asked me to have a look at the Superannuation Legislation Amendment Bill No 3 and 4 that had just been released. It not only introduced the definition of SMSFs, but it also amended the definition of in-house assets to capture a much broader set of arrangements. I think my manager was throwing me in the deep end to see what I would do. But I loved it. Maybe it comes from my science/analytical background, but reading through that bill trying to figure out what these strange beasts called SMSFs were and what you could do with them was great, and far more interesting than large funds.
Why do you like working in the SMSF space?
I really enjoy working with SMSFs because these funds are so multi-faceted; there is always something new to learn. Whether it’s Superannuation Industry (Supervision) law, trust law, estate planning, taxation, insurance or investment, there is some new or interesting issue to get your teeth into. SMSFs can also be Shakespearean at times with clients getting themselves into a vast array of dramas involving death, divorce, treachery, triumph and desperation. Working in a tech services role, you see it all. The weird and wonderful assets, the complex pension strategies, the clients wanting to use the cash in their SMSF to invest in their new business venture, or the all-too-common fight over death benefits. The kind of situations advisers may see rarely, we may receive questions about a couple of times a month. You’re the executive manager of CFS FirstTech.
What attracted you to this role?
I’ve been leading the team for about four years now. I had been a senior member of the team for a long time when the role emerged. By this time I had gathered some real depth of experience that really shaped my views, and I was encouraged to step up and start putting my own spin on things. The role of head of tech services is very, very varied. Some days it involves managing the team and making strategic business decisions, while at other times I will be presenting at conferences and professional development events, or running specialist SMSF accreditation courses, researching and writing strategy documents, or speaking to the media. I also participate in industry and regulator forums, alongside reviewing new or proposed legislation, and signing off advice documents. I also assist individual advisers with their technical inquiries.
What’s the most challenging aspect of your role?
Probably the most challenging aspect of leading the FirstTech team involves balancing the management of a team of 11 people in a large corporate, as well as being involved in the day-to-day delivery of technical support to advisers and other business units across Commonwealth Bank of Australia.
What do you most enjoy about the SMSF side of working for CFS FirstTech and do you feel it’s making a difference?
I really enjoy presenting and training on SMSF technical issues. Helping advisers understand how the rules all fit together so they can then develop strategies to help their clients achieve their goals and objectives is very rewarding. Assisting advisers with a particular client situation is also very gratifying, especially when it involves helping a client that has suffered some sort of trauma or who is dealing with an adverse life event. Some of the stories you hear are very sad and if you’re able to assist an adviser to navigate a client through a difficult time and maybe make things a little easier, then you know you’re making a difference.
What SMSF issues seem to be taking up most of your time right now?
Did someone say super reform? It’s taking up a massive amount of our time and resources at the moment. Super is already a complex system and even a small change can have significant consequences – and these are not small changes. They take all the complexity the Simpler Super reforms removed from the system 10 years ago and throw it all back in, and then some. If I had to name one reform that’s taking up a lot of time, it would have to be the transitional capital gains tax (CGT) relief rules. While the intent is simple, the rules to achieve it are actually very complex. As a result we’re receiving a lot of calls from advisers who are finding there is no simple answer. Each fund is different and you have to carefully step through each scenario and explain how it all works.
What do you think about the industry’s concerns about how complex the new superannuation measures are?
I think the concerns are real and warranted. These rules are really quite complex and I believe that post 1 July 2017, super advice is going to become more of a specialist advice area. For example, unless advisers have a very good understanding of the new key concepts, such as total super balance and the transfer balance cap, they will be exposing themselves and their clients to a lot of risk.
Will there be any positive outcomes as a result of the wide changes to superannuation?
Absolutely. If advisers are prepared to put in the hard work to develop a deep understanding of both the rules and related strategies, they are setting themselves up to really add value to their clients. While there has been a lot of talk about the advice opportunities stemming from the removal of the personal deductible contribution eligibility requirements, I think the introduction of the new deferred income stream rules will also represent a large opportunity for advisers. Depending on what the final rules look like and the nature of the products that become available, these rules could allow advisers to implement innovative strategies to assist clients to better manage their retirement income.
From your time in the industry, is SMSF specialisation making a difference?
In a word, yes. When I started in the tech team at CFS 19 years ago, the types of questions you would get were generally fairly basic with the odd hard one. However, over the years the questions have been getting more and more complicated as adviser competency has increased. Advisers, especially those holding the SMSF Association Specialist Advisor designation, now know their stuff. If they’re calling it’s not to get help with a simple question, they already have that covered, instead it’s because they have a complex scenario they need specialist help with.
What’s the biggest change you’ve seen in the industry?
There have been so many significant changes that have shaped the way the industry works today. Advancements in technology have definitely had a significant impact and will continue to do so. The Future of Financial Advice reforms and the drive towards increased education standards and professionalism have also had major impacts. It’ll also be interesting to see how the removal of the accountant’s exemption and the introduction of the limited licence will play out. While some accountants will continue to provide tax and administration services and will refer clients for financial advice, others are moving to either a full or limited licence, or authorisation. However, the recent “CommBank SMSF Report 2017” tells us that trustees are increasingly looking for a one-stop-shop solution. Therefore those accountants signing up to provide advice and then opting for the full licence instead of the limited authorisation may be getting the jump on their competitors.
If there was one thing you could change about the SMSF sector, what would it be?
The name self-managed superannuation funds, for one. The number of people who truly manage their own super are few and far between. People may do bits and pieces themselves but then outsource key aspects of running an SMSF to others, whether it’s an SMSF admin service provider, their accountant or their financial adviser.
What’s the key challenge facing the sector over the next six to 12 months?
Bedding down super reform and then transitioning to the new post 1 July 2017 world will be a significant challenge for many. While the reforms are not aimed at any particular segment of the industry, I think SMSF members will be impacted most just due to the high-balance nature of these funds. The complexity of the estate planning needs of SMSF members will also go to a new level with advisers now needing to factor in the transfer balance cap when assisting a client to understand their estate planning situation and needs. The transitional CGT relief rules will also be a big challenge for many advisers. Just getting your head around the rules is hard enough, let alone knowing what a client should do and then implementing action plans within the required time frames. My fear is there is going to be quite a few bumps in the road ahead before everything starts to settle down and we get used to the new rules.