Porte Financial Services director Robert Porte has only recently become an SMSF specialist. He tells Darin Tyson-Chan about the importance of this accreditation and how he’d like to see the sector start to become less fragmented.
What was your introduction to SMSFs?
What was your introduction to SMSFs?I’ve been involved with SMSFs to some extent for a long time. If I go back to the old excluded funds under the former insurance and superannuation commissioner, prior to the introduction of the SIS (Superannuation Industry (Supervision)) Act in 1994 and the ATO (Australian Taxation Office) taking over regulation, I can remember dealing with some of those funds then. You see in the early ‘90s, while it was non-SMSF, I had a focus on small corporate superannuation. Having been heavily involved in that market when things turned, there was a significant haemorrhage from that area into SMSFs and given the dynamics of the change, you couldn’t fight it and had to go with it.
While your change in focus was somewhat forced, did you find it a natural progression?
Not really. My licensee didn’t really have any offering in this space at the time. But a couple of key people within the dealer group started the push to establish an SMSF offering and as part of the push they began dealing with Grant Abbott, who was with the Strategist Group. I was wanting to learn more about the sector at the time and that led me to take an SMSF course at Coolum in 2004 with Grant Abbott. So that was my first real education in the space.
So how hard was it for you to take these new concepts on board?
I have a fairly extensive background that includes training with the Securities Institute. But I don’t have a background in tax or law, so suddenly I had to learn about something I hadn’t been exposed to before. It included 2000 pages of legislation, mainly the SIS Act and the 1997 Tax Act and a bit of family law that I had to study. Not having a legal background made this a difficult task.
Have you done any further SMSF training?
After my initial course with Grant Abbott I also did the Kaplan course, but only by recognition of prior learning, which was just exam only. It was fairly concise but light on compared to some of the other courses. So in late 2011 I decided to undertake the SPAA (Self -Managed Super Fund Professionals’ Association of Australia) specialist course and, following on from that, I did the professional certificate through Adelaide University this year, which is something I’d been contemplating doing for a while. That course was a great refresher and bridged some of the gaps in my knowledge and I’d recommend that to anyone.
How difficult were these courses?
If I go back to my first course with Grant Abbott, that was information overload because SMSFs were not an area I’d had any exposure to, but then given the build up of knowledge over time since then, the subsequent courses were easier. I think the SPAA specialisation is designed to make people fail because you’ve got a minute to answer each question and they’re very closely worded, and from what I heard on the grapevine the fail rate must have been very high because they’re now offering some tutorials for it. I didn’t struggle with the Adelaide University course, but if you took it on without any background knowledge, I think you’d have a very difficult time.
For someone looking to enter and service this space are these types of specialist courses imperative?
I would say absolutely because I have colleagues who are with other dealer groups and they give SMSF advice because it just falls under superannuation, but the knowledge gaps out there in this area are quite astounding. Even at a basic competency level sometimes trying to convey what trustee responsibilities are can be a challenge, so I think it should be mandatory advisers do at least some form of formal education in this area. We’re seeing the accountants’ exemption change midway through next year and who knows whether financial planners are going to have the same issues around tax advice, so I think the next step would be to consider doing something like the foundations in tax for 2013. I mean it’s not a prerequisite given the background, but given how the licensing is about to change you’d probably be a step ahead if you’d consider it. Getting back to the original point, I think you definitely need specialisation in the SMSF field so you don’t have things blowing up on you later down the track.
Have you noticed the specialisations being recognised by clients?
It’s something you can use to promote the fact that you are a specialist in the area and it’s probably something I have not leveraged off enough, but I do intend to in the future. Part of the reason I haven’t publicised the specialisation is that there still isn’t enough consumer awareness of SPAA as an organisation and in turn what that specialisation means and how it interacts with the rest of the financial planning industry. It’s not a job for me and is perhaps something the industry needs to address.
You said you recognised there are gaps in the SMSF space for practitioners. What are these gaps and are they being addressed?
My licensee is addressing it because under its licence you can’t offer SMSF advice unless you have some kind of accreditation to do so. But that’s not the case with all licensees. I don’t think there is one specific area that needs attention; it’s more a matter of all issues across the board. I’m referring to simple concepts like the acquisition of related-party assets, lending to members, the sole purpose test, and things that would be considered core fundamentals, and that is a worry.
So what sort of services do you offer your SMSF clients?
We don’t have an in-house accounting practice so we’re not directly involved in the administration of funds. In terms of structure, we offer strategic advice and stemming from our origins we offer advice in regard to insurance as well. Our licensee is AMP and it is now offering administration platforms, having acquired Multiport, through the Axa merger, more recently the Cavendish acquisition, and the almost half share in Super IQ. So it’s come from having virtually no involvement to being heavily engaged in this space with a business unit specifically devoted to this area.
Is there one area of advice your clients seem to be demanding the most?
It’s mainly general things that can be as simple as explaining what an SMSF is and how to set one up and how it differs from the other superannuation structures, to the strategies and the things you can do with an SMSF that you can’t do with a conventional retail or industry fund. Strategy has been a large component because in the past with the accountants’ exemption and the limited scope they had, clients would have an SMSF set up with all of their funds ending up in cash with very much an ad hoc approach to the investment strategy. That’s one area where advisers like myself can really add value. Estate planning is another area with a lot of demand that hasn’t really been addressed to date.
What’s the level of SMSF knowledge like among trustees currently?
It depends on the client. There’s been a shift in interest stemming from younger superannuants who are in their late 20s or early 30s in SMSFs and have experienced life under the superannuation guarantee scheme for the longest period of time but have traditionally been disengaged. So they’re now becoming more engaged, but they generally don’t have a lot of knowledge in how to run their own fund. Baby boomers and pre-retirees have a better knowledge base in general because they’ve had more time on their hands and taken a more active interest in it and learn a lot more about it.
Has the demographic shift in the people setting up SMSFs surprised you?
Not really. A lot of Australians are very property focused because it’s an investment they understand and obviously holding direct property is not something they can do through their typical retail or industry fund. Also, while the use of borrowing within super funds is still here, younger members can implement these strategies that they can’t do with other funds. There are a lot of young professionals too who have become aware of what they can do with business real property in an SMSF, of which they’d like to take advantage.
What’s the most significant change you’ve witnessed in the SMSF sector?
In recent times it would have to be the demographic shift in the individuals who are setting up SMSFs like we just talked about. Associated with this is the new found engagement in generation X members that never used to exist.
If you could change one thing about the SMSF sector, what would it be?
I still think to some extent it is a cottage industry because there are so many players. There are industry participants such as auditors, lawyers, accountants, administrators, and I could go on, so it’s still quite fragmented. So I’d like to see it become more cohesive over time. Also I think there needs to be some change to the licensing rules governing direct property. It’s overdue, but with the government’s focus on other financial services areas it probably won’t be addressed for a while yet.
Whose role would it be to make the industry more cohesive in the future?
It would more than likely have to stem from the regulators. It would come down to assessing if the industry has become too big for the ATO to regulate and if another area of government needs to be involved. I mean from an audit perspective we can see the ATO doesn’t really have the capacity to look after everything there.
Over the next 12 months, what’s the biggest challenge facing the sector?
It will be getting items on the periphery right, such as estate planning because it’s a relatively untapped area and something that hasn’t been addressed. I’ve attended a few trustee education days recently with a cross-section of SMSF members in the room and when the topic of estate planning is raised and questions are asked about it, some of the responses we get are fairly indicative where only the surface has been scratched on this topic. The need to consider insurance as part of the fund’s investment strategy is another example of an area that needs looking at.
