SMSF Alliance practice principal David Busoli has experienced the full evolution of the SMSF sector. He explains to Darin Tyson-Chan the concept behind strategic administration and expresses his desire for the constant sniping from some parts of the superannuation industry to stop.
How did you become involved in the SMSF sector?
It goes back to before the SMSF sector existed. I was one of the first financial planners in the space, one of the first members of the FPA (Financial Planning Association), I was doing accounting, bookkeeping and finance broking when there were internal funds – there were no SMSFs. So when SMSFs suddenly gained some proper legal basis, back in the very early ‘80s, then I became quite enthusiastic about them, a little bit obsessed actually, and I’ve been involved in the sector ever since.
What drove your self-confessed SMSF obsession?
I enjoy playing chess and I felt SMSFs were similar to that from the perspective you had a substantial amount of legislation, you had strategy, you had lines that are clearly drawn that you couldn’t cross and others that you can operate within, and it gave you the opportunity to do something special for your clients in the financial planning space.
Having been involved with the sector from the start, how did you educate yourself in the relevant areas?
There was nothing in the way of education back in those days and quite a lot of the educational material I wrote. It was really a matter of reading as much as I could about it and in doing so I created my own education program early on. Then as time went on, and it became fashionable to provide formal education courses on SMSFs, I attended every course that I could and my knowledge levels rose simultaneously.
What services does SMSF Alliance provide?
It is purely a business-to-business offering. We deal only with advisers and offer the full plethora of services you’d expect an SMSF administrator to provide, but with a bit of a difference. We focus on strategic administration, which ties in strategy consideration to the administration process. This requires a greater expertise at the processing level and the result is another set of eyes looks for strategic opportunities and potential traps. Conventional administrators don’t offer that and so we provide, I suppose, a back-up to advisers. It could be the practitioner has not seen all the opportunities that exist or maybe not. Either way it’s a low-cost option and the adviser will decide whether or not they will receive value from that.
How important is strategy?
I see little point in merely providing a compliant administration service. You find that now the movement in administration platforms is clearly towards the industrialisation, so what’s happened is there has been an increase in the overall level of compliance with SMSFs because of better software and processes, the debits and credits match off and you can get an audit sign-off. But what has suffered is the strategy side. As far as I’m concerned the compliance part of SMSFs is a mandatory minimum and it doesn’t help that the way the administration space has moved is to provide a cookie-cutter approach where everyone is maybe compliant, but is losing out on strategy.
Have the super reforms emphasised how administration and strategy need to work together?
Absolutely. I think what’s happened is that with a greater focus on 24/7 results, on the best interest duty and on litigation there is an absolute need for advisers to involve themselves in a strategic administration service. I don’t think they can afford not to quite frankly, so I think there is a huge demand growing in this area.
How much pressure have the transfer balance account report (TBAR) requirements placed on SMSF administration service providers?
TBAR hasn’t really affected us because we’ve already focused heavily on 24/7 administration. More importantly with TBAR it’s made advisers consider pension matters more proactively, so it’s probably had more of an effect on advisers, and of course the trustees they service, than on administrators like ourselves. We’ve already been conditioned to handle this type of administration.
Will the sector eventually move to a real-time reporting model?
I think it is inevitable. I think it will require a significant improvement in the electronic processing capabilities that are available in the marketplace. Right now we have a number of providers offering downloaded automatic processing, however, this capability falls well short of what is required to provide 24/7 processing across the board. In fact, it’s unfortunately quite often the promise the software providers state but falls somewhat short of what is actually provided. But moving into the future with blockchain technology and the like everyone will be practising real-time reporting for SMSFs and at that time I think there will be significant downward pressure on costs. I would imagine at that time there will be very few funds that are administered for over $1000, even those with strategic administration.
From a strategy perspective, where do you think the biggest opportunities lie for advisers?
I think the super reforms have brought a sharper focus on the total super balance, be it sitting at $1.4 million, $1.5 million or $1.6 million, and the way of maximising non-concessional contributions around those pivot points. I think there’s a considerable lack of attention paid to the estate planning attributes of SMSFs with regard to blended families and inadequacy of trust deeds and binding death benefit nominations and other mechanisms. Those are the big ones, but then there are a plethora of smaller items that should be considered. For example, I’ve always been an enthusiastic promoter of future service benefit where it’s useful, but by the same token, and on the flipside, I’ve always been quite concerned about the creation of an untaxed element. These are items that can slip in or out of consideration completely by accident and we should be looking at these things if we are going to make sure we both maximise the potential and minimise any damage.
What about the ATO’s new position on reserves. Will a lot of remedial work need to be done here?
I don’t think there will be the need for a lot of corrective work. I don’t think that there was a huge use of reserves in the past and where there have been reserves created, I don’t think the work needed will be that difficult.
What effect might the proposed change to the treatment of imputation credits for SMSFs have on your business and fund strategies?
If this does happen, I would think that a lot of people will cease their pensions. The reason being that pensions are popular because they are tax-free and if you’re not going to get a refund of franking credits and you have an accumulation account, you’re going to have zero tax without losing the imputation credits. In addition, you won’t have to worry about TBAR compliance and transfer balance accounts and all the other bits and pieces. From an administration point of view, I don’t think we’d have to amend much at all to incorporate this change. If anything it will be easier if more people end up commuting their pensions and reverting back to an accumulation account.
How much of a challenge to administration services are the constant technological advancements?
Change is always a challenge, but it’s one that we welcome. There have been huge improvements in technology over the last few years and I’m sure it will improve drastically in the future. There were times when funds would be paying, say 10 years ago, up to $10,000 a year for administration and now they pay $2000 and we service a lot of funds for under $1000. We have to bear in mind that if we don’t change and develop, you go backwards. We must all change constantly in order to stay in front of the game and I find that quite exciting.
What’s the most significant change you’ve seen in the SMSF space?
I think the most significant change has been the super reforms. They’ve turned everything on its head. Going back there was one other very significant change and that was when SMSFs received a legal tick-off back in the early 1980s. Before then the only thing that was available in a self-managed arrangement were internal funds, but that was nothing short of a tax dodge really. They were only ever done by accountants. When SMSFs received proper legislative grounding under the SIS (Superannuation Industry (Supervision)) Act then suddenly a new sector was born. At the time, with the demise of the internal funds, the cry was up that this sort of structure is now dead. But the reality was quite different, given a proper legal framework to give Australians the opportunity to manage their own destiny in retirement. What was created was a hugely popular structure, which I think history has shown.
If you could change one thing about the SMSF sector, what would it be?
I’d like to see the fake news disappear from the superannuation sector. I’d like to see an appreciation that there is a place for SMSFs, retail funds and industry funds. I’d like to see the constant sniping and half-truths and sometimes blatant untruths which are paraded as fact to try and denigrate the SMSF sector eliminated.
What’s the biggest challenge facing the SMSF sector in the coming year?
I think the biggest challenge is to come to grips with more of the changes in a material way. That will require a lot of changes to software, a lot of changes to processes and changes to expectations. I think over the next year that will be the biggest thing. I’m not concerned by any of them because they are part and parcel of the business.