Australian Superannuation and Compliance managing director Ravi Subramaniam averted his focus from general financial planning to SMSF administration to make his business more secure. He discusses with Darin Tyson-Chan his frustration at the over-regulation of the industry as well as the tyranny of distance he faces being based in Perth.
How did your introduction to the SMSF sector arise?
I started off as a financial planner in 1984 looking to build a business through my analytical and practical skills. I quickly discovered a lot of my clients didn’t care much about super, which I thought was the most effective savings vehicle. When I asked them why they didn’t consider it, you know I got two common answers: one was “I like ownership” and the other was they like control where they can choose and decide where they put their money. Also, during that time there were a couple of financial disasters happening, such as mortgage trusts collapsing, and I was worried about the longevity of being a financial planner. So that’s what really got me focused on the SMSF sector and I found they were a vehicle people weren’t using, but could give them the direct control they were after in regard to their superannuation.
What services do you offer your clients?
While I started as a financial planner, I quickly realised SMSF trustees had a lot of support available for their investment decisions, but there was no one offering housekeeping for them. So I decided to provide a professional administration service where trustees didn’t have to think about compliance issues. So from day one I have provided a real-time administration service that can accommodate all investment transactions SMSF members make, be it buying shares through a stockbroker or property through say a real estate agent. We record all the transactions very much as they happen, to the extent where a client could ring us and within half an hour we could actually send a balance sheet for the super fund and a report showing how much income had been received to date. We’ve done that from day one and a lot of our competitors are starting to do the same now.
How critical is it for a trustee to have up-to-the-minute information on their SMSF?
SMSF compliance has always been fairly onerous, but I think we’re about to see the audit function become more strict due to the audit registration process and their compliance requirements under those rules. I think compulsory auditor registration is a great introduction because compliance will be taken more seriously and non-complying activities will be treated differently to the old days where you got a slap on the wrist and told to fix it up later. So with this greater audit vigilance having the most up-to-date records is imperative. Also, there are an increasing number of investment opportunities and strategies available to SMSFs, such as limited recourse borrowing arrangements, requiring trustees to be more informed about their fund’s current position. These types of investments are less straightforward than just buying and selling shares and demand information that is updated immediately as opposed to yearly or quarterly. Trustees want to know what they have got in their fund and when they can start to invest in a new asset or implement a new strategy.
Outsourcing is a popular strategy among administration providers to keep costs down. What do you think about this method and does it pose a threat to you?
I don’t believe in outsourcing. We have never outsourced to overseas, that means outside of Australia, because we have to do things according to Australian laws and Australian regulations and I will never have the confidence to feel there is some office somewhere foreign meeting all of these requirements. It’s difficult keeping up with the changes to the legislation, so how you do that in the context of outsourcing the administration function overseas is hard to know. There would probably be a situation in which you could outsource, say providing services like bookkeeping using cheaper labour, but I think the administration needs to be done locally due to the compliance factor.
The landscape of the administration space is changing through mergers and acquisitions. Does this pose a threat to your business in regard to lower-priced services due to scale?
Regardless of how big you are you have to work out the unit cost on servicing a minimum job. The more funds you service, the more work you have to do, but you still need to make a profit on the minimum fund otherwise you’ll go broke. So I can’t see how you can make an argument for being able to deliver a good service based on offering a volume-discounted price. You just can’t keep going lower and lower with your price. So scale from a cost perspective is not a real concern.
The new licensing rules for accountants and the commoditisation of the administration role may see some of these professionals exit the sector. Will you gain from this development?
Yes and no. It depends actually on the practice. If a practice has already established a good department and they have dedicated staff, why would they want to change? One of the main issues in SMSF administration is being able to have qualified, dedicated staff who stick to the job. If an accounting practice has already established this, I couldn’t see why they’d want to give it up. So each accounting practice will have to review whether they want to stop providing administration services on the basis of how skilful their staff are. The smaller practices will struggle and perhaps they’ll be looking to hand this type of activity to someone else, so we may see some upside there.
Has the fact you’re Perth-based had an effect on your business?
Logically it should not, but it does. A lot of our clients have been referred to us by word of mouth. So while we’ve grown, it’s still difficult to attract clients from the eastern seaboard. Western Australia is so far away and when I go over east and mix with SMSF advisers and trustees, they look at WA like it’s another country. The advisers in WA prefer to have a local person do the job that they can physically visit. They also like the fact of not having to deal with the interstate time difference if they need a query to be answered. Another thing that has counted against us is that we have not had the time to market the service to the rest of Australia. We’ve been too focused on the job we’re doing to partake in marketing as an activity. But I think it’s time to let people know through the media that we are a successful SMSF administration provider in WA servicing over 400 funds and doing a great job.
What’s the most significant change you’ve seen in the SMSF sector?
The most significant change I have seen, I think over the past 20 years, has been continuous change to the requirements involving SMSF administration and compliance. There seem to be more and more rules we have to abide by and it doesn’t make sense as I don’t see any really discernible problems with the sector. I go back to things like the Cooper review that concluded the SMSF sector is in good health, so why does it need to be over-regulated? Why can’t we have a practical approach to regulating people who are controlling their own superannuation money? That’s not to say the Australian Taxation Office (ATO) is not doing a good job as a regulator. The ATO is very responsive and seem to address the right issues. One example, that I was very appreciative about, was its recent action to look at the zero interest related-party loans. So I find that the ATO is pretty proactive.
What would be the one thing you’d change about the sector?
It would be to make sure that everything is done correctly. What I mean by this is to make sure every transaction is carried out on a proper commercial and arm’s-length basis. It would certainly take a lot of the headaches away from the industry. It would improve the compliance. I think it also would assist advisers because it would make some common situations clearer. For example, with artwork perhaps the rules could be that the trustee can have access to it as long as they give you the commercial return. If no commercial return is coming, then you are non-compliant. Where you hang it is not an issue, but if you are not earning money, then the whole purpose of the fund is compromised. So if all transactions had to be on an arm’s-length basis or standard commercial terms, I think a lot of problems would be eliminated.
What’s the biggest challenge facing the sector over the next 12 months?
The biggest challenge over the next year will be the SuperStream requirements. From an SMSF point of view I don’t really know what it will be achieving. To me it has a danger of bogging down the administration service providers with more and more red tape and I don’t think that’s a great outcome.
