Choosing an SMSF administration provider is a more complex process than it may seem on the surface. Olivia Long takes us through the pros and cons of the options available.
Deciding to establish an SMSF can be one of the best decisions any individual makes. Why? The evidence shows direct control and hands-on engagement with superannuation typically delivers better returns than the Australian Prudential Regulation Authority-regulated funds.
But there is a catch. Most trustees need specialist advice to achieve this outcome. In my experience, many new trustees, in particular, don’t appreciate the service offerings available and how they differ.
Selecting the right partner(s) to help you manage your SMSF is critical to your success.
Most SMSF trustees establish an SMSF based on advice from their personal accountant. As such, it’s not surprising most trustees simply decide to let their accountant handle their tax and compliance affairs – especially considering they don’t understand what’s involved in running an SMSF.
The SMSF industry is characterised by small, often specialised practices, with 62 per cent of businesses servicing less than 100 funds, and the service they offer is far different to that of a specialist administrator; not always better, but certainly different.
However, SMSF administrators do have the benefit of scale – providing their services to thousands of SMSF trustees and focusing their time and effort on delivering efficiency to their clients.
Most have embraced technological change more quickly than the traditional accountant, passing on the efficiencies gained from direct data feeds via more competitive service offerings.
Put simply, a digital administrator can provide trustees with up-to-date, online information progressively during the financial year, not a paper-based set of financial statements often up to nine months after the financial year has ended.
Having up-to-date information enables trustees to be more proactive in managing their superannuation and to far more easily satisfy the compliance requirements of running their fund.
Let’s compare traditional accounting versus digital administration.
There are generally four types of services available to SMSF trustees: financial adviser, personal accountant, low-cost SMSF administrator and specialist SMSF administrator.
Quite simply working with a financial adviser, especially one who has engaged the services of a specialist SMSF administrator, provides the ultimate client experience.
The SMSF administrator handles the day-to-day paperwork, providing the adviser with live information they can use to offer proactive advice to clients.
Under this service model many advisers offer a regular meeting and review of a client’s position to ensure they’re maximising any taxation or other strategies available to them on a regular basis.
· trustees have very little hands-on interaction with their SMSF other than to approve investment recommendations and strategies,
· these clients generally see better results with their fund due to the use of sophisticated strategies, and
· running an SMSF is easy.
· in the SMSF industry you get what you pay for. Financial advice and professional administration don’t come cheaply and many trustees are happy to settle for a simpler · strategy with lower costs to preserve their retirement savings.
Although some of the more progressive accounting firms have decided to white label or outsource their SMSF offering to a specialist, there are still a majority that take the traditional approach to accounting for SMSFs after the end of the financial year via the shoe-box method.
What many trustees don’t realise is that for the same cost they would generally pay to their personal accountant, they take on the additional burden of administration, bookkeeping and compliance risk.
· many trustees get a sense of comfort from dealing with their accountant as one point of contact for all their tax affairs, and
· appointing your personal accountant requires very little research and thinking time.
· trustees are responsible for their own bookkeeping and administration – a significant burden for those not comfortable with paperwork,
· managing compliance obligations is made more difficult as trustees need to manually track and calculate contributions and pension figures during the year to ensure they comply,
· manually monitoring compliance obligations during the financial year to ensure they have been met can be timely and burdensome,
· lack of accurate monitoring of pension and contribution figures can result in a compliance breach, and
· should a compliance breach occur, they’re not detected until after the end of the financial year and therefore attract an audit qualification report.
Low-cost SMSF administrator
There’s an emerging market of low-cost administrators spruiking free set-ups and cheap annual accounts. Again, you generally get what you pay for. I strongly recommend trustees do their research before appointing somebody you find on the internet.
There are four things to focus on when talking to those providing an SMSF offering below $1000.
1. What is their experience with SMSFs?
2. Are there any conditions on what platforms/investments can be used under the offering?
3. Do they provide proactive compliance advice?
4. What are their responsibilities and what remains my responsibility?
Some providers can provide sophisticated services, including daily online reporting, for very cheap fees, but generally have some limitations about which platforms/products you can use as your investment vehicles to ensure the efficiency of their service.
Specialist SMSF administrator
This market is still relatively new to the industry, with many of the larger players having only 10 to 15 years’ experience providing full administrative services.
SMSF administrators provide a complete SMSF service (albeit without investment and product advice), including a mailbox service for your fund, regular online SMSF reporting, annual accounts, proactive compliance and tax advice, and a complete hand-holding service to trustees running their own SMSFs.
As specialists in SMSFs, many administrators use market-leading software to provide you with live SMSF information, anywhere, any time. They have embraced today’s digital age and mobile delivery of information.
· trustees have very little hands-on interaction with their SMSF other than to make investment decisions or review how their fund is performing,
· trustees can use a help desk with day-to-day assistance included in the annual fee,
administrators can provide proactive tax advice, ensuring trustees are kept aware of strategies available to them during their SMSF life cycle, and
· fees are generally comparable to a traditional accountant, yet you receive so much more.
· administrators can provide tax advice, but not financial advice. They will need to refer you to a financial planner to consider your personal
· situation for any strategic SMSF advice (that can be provided on a once-off user-pays basis).
Many new firms are popping up with limited SMSF experience, cheap fees and a fancy website, attracting trustees that may not know the types of questions they should be asking.
Quite simply, to satisfy yourself that you’re selecting the ‘right’ administrator, follow this checklist:
· How many years’ SMSF-specific experience have they had?
· How many years has your SMSF firm been in business?
· How many SMSFs do they administer?
· How many SMSF specialists are there in the practice?
· Are they a member of any industry body?
· Do they provide an administrative service or annual accounts only?
· Do they provide online reporting?
· What type of online reporting do they provide?
– SMSF specific reports with updated contributions, pensions and member statements,
– Investment reporting with portfolio valuations and tax summary information,
– Annual financial statements – scanned and uploaded once a year.
· How frequently do they reconcile accounts in full to provide online reporting?
· Do they monitor your contributions to ensure you don’t exceed the limit?
· Do you review your pension drawings before year-end to ensure minimum pension requirements are met?
· If there is a compliance breach in the fund, when are they likely to notice it and advise you?
· Do they provide proactive taxation and compliance advice or just a set of accounts?
· How frequently do they reconcile accounts in full to provide online reporting?
One final tip: investing the time to research your SMSF partner at the beginning of your journey will provide you with peace of mind when managing your superannuation through all three phases – accumulation, transition and drawdown.