Act 2 Solutions director and founder Andy O’Meagher has gone from not knowing what an actuary does to being a major provider of actuarial certificates for SMSFs. He tells Darin Tyson-Chan the market will experience an increased amount of automation in the years ahead, but standards of knowledge need improvement.
How did you come to be involved in the SMSF sector?
Back in the year 2000 I was working for Western Mining Corporation and I was applying for another position. During this process I had to go through psychic and aptitude testing and it was observed I was very good at arithmetic, and I was asked if I’d ever considered being an actuary. So I gave the standard response: “What’s an actuary?” The position in the mining industry was not going to be suitable for me so I went back to university and started on my actuarial studies. I had a computer programming background and started working with an actuarial firm in Perth. We developed a piece of software that valued defined benefit pensions in SMSFs. I had the application to the point where it was almost finished and I sent a copy of the software to a few actuaries around Australia who were working with SMSFs. Brian Bendzulla in Hobart got back to me and wanted to buy the software from me. He asked me how much I wanted for it and, as a university student, I knew I’d spent thousands of hours on it but couldn’t tell him what it was worth. Eventually I told him he could have the software but I wanted a job, so in February 2004 I flew over to Hobart and started working as an actuarial consultant for Bendzulla Actuarial. I very quickly found the SMSF industry was so interesting, changing and challenging, so much so my sights moved from being an actuary to developing software that would make a difference to the compliance side of things. So very quickly I decided the SMSF sector was something that would really work well for me.
How did Act 2 Solutions develop?
In January 2010, I left Bendzulla Actuarial and started Act 2 on my own in a friend’s garage. The operation consisted of one computer and a very basic set up. I got my first request on
13 February from a Queensland firm. I went to the SPAA (SMSF Professionals’ Association of Australia) Conference in Melbourne in 2010 and was very fortunate in getting the last booth for the event. As it happened, my booth was right in front of the registration desk and I knew no one would know who Act 2 Solutions was so I made sure the banner had my name on it because a lot of people knew who I was. I can tell you at the end of that first day I went back to my hotel room and I didn’t want to talk to anybody because for most of the day the line was three deep at the stand. From those humble beginnings we’ve moved on very well.
What services do you offer clients?
Primarily we provide actuarial certificates for account-based pensions, and certificates of income for tax exemptions. We also prepare actuarial certificates for defined benefit pensions and we’re in the process of extending these activities to other areas. We have an actuarial firm as a partner, so any services outside the ones for SMSFs we pass on to them.
You also have strategic partnerships with BGL and Class Super. What’s the importance of these?
When I was at Bendzulla I realised a lot of the processes in the SMSF space are still quite archaic and I wanted to make sure this particular component of SMSF compliance wasn’t something that was going to take up a whole lot of an SMSF administrator’s time. It’s essentially about collecting the right data to perform the calculations, so while I was there I automated the process quite significantly. Since then I got together with Justsuper and approached BGL and explained to them that with the existing data in the software there should be a simpler way for them to either create a report that extracted that data and filled in an application form or, what ultimately came about, have the certificates themselves prepared within the software. So that’s been in place since May 2011 and some clients of BGL Simple Fund are able to request their actuarial certificates directly within the software. We get a copy of the certificate and all the data enabling us to check the calculations and make sure all of the data is correct. Then we email all the information back to the client and it then all becomes available to them within the software.
Can we expect to see more of this type of automation in the SMSF sector?
It is where the industry is heading on so many levels that automation is going to make the actual administration of SMSFs simpler, faster and I guess more cost effective for the trustees. We’re in the process of developing a web interface that will interact directly with Class Super and Simple Fund 360 when BGL launches it later in the year. It will also interface with superMate and Desktop Super.
How informed are advisers and trustees about the situations when they might need an actuarial certificate?
What I hear from quite a few of my clients is when they take on looking after SMSFs from other firms, generally smaller firms, they find these firms haven’t been getting actuarial certificates in the past when they’ve needed them. So it seems there are still quite a lot of individuals working in the sector who haven’t yet been informed this is a necessity in some instances. It’s not automatic that every SMSF needs a certificate every year, in fact it’s just the opposite. If your fund is in accumulation phase and you’re still building your asset base, there is no need for an actuarial certificate. If your fund is entirely in pension phase for the whole year, again there is no need for an actuarial certificate. It’s during the transition where you’ve got at least one accumulation account and one pension account that there’s the need for the calculation of a certificate. Being such a broad industry with a very broad range of people out there with a variety of skills, knowledge and experience, I think the ongoing training and education of all the new SMSF players is vital to make sure they know exactly what compliance needs are to be met for each fund.
You’ve already begun initiating this education process haven’t you?
That’s right. I think while the ATO (Australian Taxation Office) recognise trustees themselves are falling short on their understanding of the knowledge of SMSFs, I still think there are a lot of firms out there employing people to help them administer SMSFs that aren’t necessarily providing them with superannuation training. Fortunately we’re now seeing some pretty good products on the market that will help improve the situation. I also think with SPAA making its audit specialisation compulsory for SMSF auditors, if they look down the track to make perhaps a subset of this specialisation compulsory for all of those practitioners involved in administration, it would help alleviate the situation.
How competitive is the actuarial space?
When Act 2 started in 2010 and I went to the SPAA conference in Melbourne, I really found out just how competitive this area is. I had an actuary come up to me and say there was nothing in my advertising that indicated I wasn’t an actuary. I pointed out there was nothing in there that said I wasn’t a plumber either, but he didn’t seem to find it all that funny. What I then heard was that there were several actuaries with their noses out of joint by a non-actuary coming into their space offering this kind of service. Obviously my services are backed by an actuary who has checked through my processes and made sure everything we produce is great. He also does spot checks all the time to make sure the results that are coming out are accurate and correct. I was told there was going to be some action taken against me in February 2010 by the Institute of Actuaries, demonstrating I really had created some ripples in this little pond. It is a small pond and there are a few big fish in it.
Do there continue to be new players entering the market?
It’s become even more competitive recently and there are now a few firms offering quite cheap actuarial certificates. From what I’ve heard of their operations from other people, their services don’t seem to be meeting up with the expectations of the aftersales. It probably reflects unitisation is quite appropriate in this area as opposed to charging by the hour for actuarial services.
If there was one thing you could change in the SMSF sector what would it be?
It would be the need for a base level of understanding for those working in the SMSF space. I’ve had some pretty extraordinary questions asked of me over the years and I’ve also seen some really left-of-centre requests coming through on actuarial certificate forms. It showed me a very large lack of understanding of basic SMSF knowledge in some cases. The classic question I got one day was: “I’ve got these trustees coming around in an hour’s time to start their allocated pension and I have one question – what is an allocated pension?” So I’d like to think in the next couple of years there will be a way of ensuring everyone working in this field has an obligation to access at least a base level of SMSF legislation understanding and SMSF practice understanding.