The founder of DBA Lawyers, Daniel Butler, has a passion for the sector that led him to develop a specific trust deed for SMSFs many years ago. Darin Tyson-Chan speaks to him about the current legislative landscape and if more regulation is needed for the legal fraternity.
How did you first become involved with SMSFs?
I started doing pure tax consulting in 1983 with tax returns and I saw the growth in SMSFs. They were called excluded funds back then, but they really started taking off around 1986 and there were a lot of them being set up. So I was involved with them from a tax advisory and strategy perspective and I’ve kept my expertise going ever since. I actually worked on large funds as well, but it was in the late ‘80s when I started to narrow down my focus to just SMSFs.
So was that with legal firms only?
No, I worked at Arthur Andersen and KPMG before I started working for Baker and McKenzie in Sydney, where I was a superannuation lawyer focusing on tax and superannuation law. So I was still carving out my expertise on large funds, litigation in super, and SMSFs. I was drafting SMSF trust deeds back then and one of my claims to fame is I believe I was one of the first lawyers in Australia to design an SMSF deed, which didn’t have the clutter in it associated with other types of super funds. A lot of the clutter revolved around funds having more than 300 members, or more than 50 members, and I thought if SMSFs only have a handful of members, why not have a simpler deed for them and that was the genesis of the DBA Lawyers SMSF deed we provide today.
What services do you offer to your clients?
One of our visions when I started DBA, and it remains today, is to provide the best SMSF documentation in the country and that’s what we believe we’re doing. We believe we have the leading SMSF deed in the country and that our training services are leading edge as well because we are very adept and responsive to change. So our firm is predominantly SMSF related, but in addition to that we offer tax services, we do succession and estate planning and that’s really for clients who have the complexity of SMSFs and family trusts. We also do small business-related work, particularly with trusts and structuring businesses.
Do you feel the degree of legislative risk in the space is too high?
Do you feel the degree of legislative risk in the space is too high?We’re going through a massive reform stage, but it is getting to the stage where a lot of people are just over it and are suffering from legislation fatigue and change fatigue. The desire of the government to continually change the system and not to let the system settle down and find its own efficiencies is a concern. For example, if you have a look at the current reforms in super, it’s really patchwork. We get a piece here and a piece there. It’s held up for a long time, which makes it very difficult for advisers. The government’s track record here is looking very sad and very poor. It means it’s a full-time job for people like me to keep up with the changes and see what impact they have for our clients. I think it’s had a huge impact on the industry, particularly what the FOFA (Future of Financial Advice) reforms are doing to the financial planning community – creating a lot of uncertainty – and at the end of the day consumers have to pay and you really do have to question whether or not we will get the intended benefits after all of the costs have been absorbed. Some of the changes are positive, but one of the big things that has put us backwards in this country is the contributions limits and the penalty taxes imposed.
Is the speed, or lack of it, associated with the change exacerbating the situation?
Yes. If you look at FOFA or the accountants’ exemption, how long has that taken? You’ve got the draft regulation now, but this issue has been bubbling along for years. The professional bodies have been hounding the government for ages just to find out what’s happening and we’ve received promise after promise about announcements being imminent, and now just before Christmas we’ve been handed down an exposure draft. So the industry has been hamstrung as to getting some clarity around these issues, but the government doesn’t understand the adverse impact it’s having on the industry and consumers. It means a lot of the planning advisers are undertaking is planning to overcome legislative risk. It all comes down to very poorly run government because superannuation is a long-term playing field, but we’re forever changing the goal posts. We need bipartisan government support to encourage people to provide for their own retirement.
This being the situation, how responsive are the government and regulators to these industry concerns?
I would say the ATO (Australian Taxation Office) is receptive. I’m a member of its NTLG (National Tax Liaison Group) committee and I find the ATO is more receptive to the dialogue with the industry. It’s not always the quickest process, but at least it’s trying to change its ways and take into account industry input. With government we are involved with a number of different submissions at any time that are channelled through professional bodies, but when it comes to change Treasury seems to be well overworked, which means a lot of their priorities have been pushed out, so you don’t expect change to happen quickly. We do a lot of good work in these committees, but you find a lot of it ends up being like water off a duck’s back where they are very selective of what they take on and what they don’t. Take the excess contributions tax (ECT) penalties, for example. All the government has to do is listen to the industry and the industry is prepared to work with the government on this to get a good solution, and the industry realises there has to be a bit of give and take and it’s not asking for too much, but the government is very insistent on sticking to the ECT rules they have and they will collect the prescribed amount of tax, and they’re very unforgiving on that. They try to justify it on the basis of policy, but it’s very hard to justify.
Do the ever-changing landscape and the strict parameters make it more important for SMSF trustees to seek advice?
It doesn’t make just getting advice more important, but also the systems that they follow. Even if they’ve done everything right, often they might have an idea about it but in the implementation they mess up. For example, the three-year rule is likely to catch people out because over three years they are likely to mess up. But it’s the systems they use for things like contributions that are important because some people leave them to the last minute and they actually don’t go through and look at all of the background information in tracking the three-year rule. But other things can catch them out too. Let’s say they execute a transfer in. At the moment you can still do an off-market transfer. They have to make sure they got the market value of the asset correct and have they paid an expense on behalf of the fund because that’s a contribution.
The government is imposing new licensing requirements for accountants. Do you think lawyers will need a similar regulation in the coming years?
My thinking is no. We’ve got special carve out under the Corporations Act and regulations. I don’t think there are a lot of lawyers working in the SMSF space. There are a lot of practitioners that claim to be in the space and there are a lot of people who have got in the space in recent years, but if I think of the law firms that are servicing the sector, there are not a lot really in population terms. The other thing I’d say is I’ve been in the SMSF sector for all these years and I’m not licensed to recommend an SMSF, so for me it hasn’t been a big issue. I’ve got a lot of ethics, I always act in the best interest of the client, I cannot get any kickbacks or commissions and if people come to me, I’ve got to give independent advice. I know a lot of professionals will say that, but with lawyers it’s a very big part of this profession and we don’t give financial product advice; we’re just giving legal advice. So I think the lawyers are sufficiently regulated. I think the thing is if lawyers maintain their CPD (continuing professional development), it won’t be specifically about SMSFs, which would mean the CPD would quite often be irrelevant because it wouldn’t ensure the skill set a good SMSF lawyer would require, so I think there lies the issue.
What’s the biggest change you’ve seen in the sector?
The biggest change came in 2007. Before this time there was a lot more science in the industry. Pre-2006 there were defined benefit pensions, so we had the lifetime pensions, we had the RBLs (reasonable benefits limits) and to really get a good command of these areas you needed to have a lot of industry experience. They all got jettisoned and a lot of the rules now are simpler in the planning stage and probably that means everyone thinks they’re an expert on it.
What would be the one thing you’d change relating to SMSFs?
The contributions caps and the ECT system integration is what I’d change. I’d re-establish some sensibility into the contributions limits and I’d also reform the ECT, which is a pretty straightforward thing, and I’m sure everyone would be delighted.
What’s the biggest challenge facing the sector in the coming year?
For practitioners it will be keeping on top of change. For clients it will be about the investment of their retirement savings. There is a lot of noise about how this sector works, but I don’t see a lot of people doing the wrong thing, in fact I see a lot of people doing the positives. So it will all be factored upon the government supporting the investments in these vehicles to provide a good investment climate to broaden the range of investments, like long-term government bonds, and making sure the investment community is accountable for