Wealth Partners Financial Solutions financial adviser Damian Hearn recently made the switch from technical services to financial planning. He tells Darin Tyson-Chan there has been a loss of confidence in the superannuation system and how more effort should be made to improve trustee education.
How did your introduction to the SMSF sector happen?
I’ve been in the industry for 16 years. Prior to becoming an adviser, I used to work as a technical services manager and then head of technical services for IOOF, so I have always been in and around SMSFs. Before advising that meant assisting financial advisers in relation to technical advice and education on the product providers’ side, including product solutions, educative materials and everything involved with that. On the advice side it’s an area that I enjoy and I have been advising for just over two years.
What drives your interest in SMSFs?
Two things motivate me in being a specialist SMSF adviser. Firstly it is an area of interest and secondly I am really passionate about it. I see it as an area where, as an adviser, you can add a lot of value because a lot of clients don’t really understand all of the related issues. I like to use the analogy describing SMSFs as the high-performance vehicle of the superannuation world – it does sort of require you to have your own pit crew to assist you as the trustee who essentially is the driver. It allows you to do some wonderful things, but as with a high-performance vehicle, if you crash, you crash at high speeds and the consequences can be quite serious. From my perspective it can be highly complicated. My current role allows me to specialise in SMSFs and that was a key attractor to joining this practice. SMSFs were a big component in my previous place of work, but you did everything and in this market it’s very hard to do everything. I think the way forward in this market is to specialise in a particular area.
What services do you offer your clients?
We service the key components of SMSFs, such as the investment side, estate planning and insurance. While I enjoy all of that, I recognise when a client comes through the door they have a multitude of needs and superannuation is only one part. But while it is only one part, you have still got to go back and answer those key questions, like when do you want to retire, how much do you want to live on and how is that vehicle going to help you get there.
Is having a strong technical background helpful when providing advice?
Yes and no. My technical experience allows me, if I can use another analogy, to say to clients: “I can tell you the time on the watch, I can then tell you how to program it, or I can pull it apart and put it back together and it’s up to you what our relationship level will be.” Some clients will say: “I trust you and when I need that detail I will ask for it.” But coming across from a highly technical background and having to learn the soft skills and personality side of things has been a challenge, but a rewarding one.
Do you have specialist accreditation and how important do you think it is to have?
I have actually just signed up to do the SMSF Association Specialist Advisor course, so I’m looking forward to putting that on the CV. I’m already a member of the body and that’s a natural progression to go through. I think that the SMSF Association does great work and at the same time if you are a specialist, it doesn’t necessarily mean that you have to have the accreditation, but the market is going that way where clients want to know if the accountant they’re dealing with has a CA (chartered accountant) designation, or the adviser they’re speaking to is a certified financial planner, or if they’re receiving aged-care advice whether the person is an aged-care specialist. It gives them that confidence level and at the same time allows the practitioner to say “I specialise in this and this is what I do every day”. From that perspective it gives you the personal confidence to know you’ve been through a rigorous exam process and passed. I’m looking forward to the personal challenge of saying: “Do I meet the mark in joining that exclusive club?”
How do you find the current level of trustee knowledge?
For clients that have got existing SMSFs it’s a little bit of a concern, but they generally understand where the parameters are. For clients establishing an SMSF it’s rare if they are able to actually answer all of the mandatory questions we as advisers have to ask them under the Australian Securities and Investments Commission requirements. There are a range of different trustee education courses out there, AMP has one and the SMSF Association had one, but I’m wondering if those clients who are line ball with their knowledge would ever think to have a crack at one of them. Even with my own SMSF it was unpalatable for the other members in the fund to do the course.
Do you think there ever will be a time when trustees voluntarily take one of these courses?
I think instead of the wooden stick approach in relation to trustee education, where the regulator says “you’ve broken the rules and we won’t necessarily fine you, but go and do this remedial work via this education course”, it should be moved upfront. From that perspective it means making sure clients understand the rules because at the end of the day it is their retirement savings they’ve got on the line and they’re in control of it.
At a high level it’s eroded the confidence in the superannuation system. When speaking to clients they say “the rules continually change so what certainty is this actually giving for my retirement”...
Damian Hearn
What effect has the budget and now the new legislation had on clients?
At a high level it’s eroded the confidence in the superannuation system. When speaking to clients they say “the rules continually change so what certainty is this actually giving for my retirement”, albeit if it’s in five, 10 or 20 years’ time. The changes themselves are coming into effect from July and this gives clients an opportunity to take advantage of the existing rules up until 30 June. It’s really going to be quite a busy time over the next few months and as a firm we’re trying to raise awareness of the situation and identify the clients we need to make a priority over that period.
Is there any one change that’s been of particular concern for clients?
It’s the $1.6 million transfer balance cap. They’re wondering what it means, how it works and what should they be doing about it. I wouldn’t be surprised if we actually see money being moved out of the superannuation environment for clients who would be paying less tax on that income in their personal name compared to what they would pay in the accumulation phase if they leave it inside super. So it is a real shift. One thing we haven’t seen is clients looking to sell property in order to comply with the transfer balance cap.
What’s the biggest change you’ve seen in the SMSF sector?
The Future of Financial Advice reforms and the resulting flip to fee-for-service remuneration. Also the higher education standards that are coming in, which is a great thing, and the accountants licensing. They’re really driving change within the industry. I see the raising of education standards and entry requirements to the industry as a real positive because it does actually lift the bar as a profession. From the accountant side of things if a client goes to them wanting to set up an SMSF, the accountant has to say “this is how you can structure it”, but then provide a warning, if unlicensed, to say “I’m not providing advice on this” is a real fundamental shift in the relationship.
What’s the one thing you’d change about the SMSF sector?
It’s trustee education. I think that is the key component. Knowledge is power and it’s as simple as that. Part of the role we actually play is fixing compliance issues and if we could educate trustees upfront rather than educate them more if something goes wrong, it would help. Whether or not the regulator or the government will say before you actually go and open an SMSF you have to do an education course and get the certificate remains to be seen. But I think education is a big cornerstone.
What’s the biggest challenge facing the sector over the next year?
The superannuation changes will be the biggest challenge. These changes are something we’ll have to bed down in that time. Specifically one area that will have to be addressed is the valuation of assets. If you’re going to be monitoring account balances to police the $1.6 million transfer balance cap, the ATO is going to want to know how certain asset values were determined. When the subsequent financial years roll through and the SMSF audits are performed, one of the things the regulator will be putting at the top of the list, particularly for trustees who have restructured their fund or gone into pension phase, is the valuation of assets.
