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SAFs require greater focus

Small Australian Prudential Regulation Authority (APRA) funds (SAF) had gone relatively unnoticed as a considered recommendation or an alternative strategy for many SMSF trustees who would require advice regarding their options not only post 1 July, but right now, according to industry consultant John Wiseman.

While a SAF would not always be the appropriate solution for trustees or members, Wiseman suggested the option should be taken very seriously by those providing SMSF advice.

“In most cases, this is not going to happen unless the Australian financial services licence (AFSL) holder or dealer group starts the training and education for the authorised representatives and has the appropriate products on their approved product lists,” he said.

“At the moment this is being ignored by an alarming number of SMSF advice providers and another area that AFSLs and dealer groups need to address immediately as this is required to enable them to compliantly service their clients and/or at least present it in the statement of advice (SOA) as an alternative strategy.”

He cautioned that many accountants who had or were going to obtain their own AFSL to enable them to continue or start providing SMSF advice must not disregard SAFs.

Hopefully it was known by those who would be giving advice that a SAF was basically an SMSF but with a professional, licensed trustee, who took on the duties of compliance, administration, audit and accounting, he said.

Considering SAFs would not be a stumbling block for the provision of appropriate or alternative advice, he added.

He said accountants needed to keep in mind there was now significant regulatory focus on exit strategies and the ATO had made it clear it expected that to be considered by the trustees when establishing their fund.

Further, they should consider the many reasons why an SMSF might need to be wound up, which included death of a member, divorce of members, a member’s loss or lack of capacity, a member’s loss of interest in running the fund, a member becoming a non-resident or a member becoming a disqualified person, for example, due to bankruptcy, he said.

One of the many outcomes of the new SMSF regulatory regime would be the inevitable increase in fees and costs for trustees and members, which would be substantial as the cheap, do-it-yourself days were about to come to an abrupt end, he pointed out.

“As one of the primary motivators for SMSFs have been fees and charges, the new reality will see many seeking to exit their fund, and some options they may need to consider are rolling into a retail, industry or public offer fund, converting to a SAF or withdrawing from the fund if the condition of release conditions are met,” he said.

“For those who do opt for a SAF, there are many advantages [which professional advisers should disclose] to clients as viable considerations when presenting a SOA.”

SAFs were particularly useful where members lacked capacity as the result of dementia or Alzheimer’s disease, in blended families to protect both the old and new families, and for protecting children with disabilities, he said.

Also, for those with assets currently in an SMSF that were then converted to a SAF, there was the possibility they could be maintained with tax advantages, he said.

He also pointed out SAFs were covered by the Superannuation Complaints Tribunal and Superannuation Compensation Scheme in the case of losses caused by theft or fraud, however, SMSFs were not.

The need for SAFs to be on approved product lists was yet another example of both the issues and opportunities that were going to bring accountants and financial planners closer together as 1 July approached, he said.

“I expect to see many more problems arising in this highly charged environment and they are going to keep coming to the fore as the inadequacies and inefficiencies of the past are put under the spotlight,” he said.

“However, from disruption comes opportunity and I foresee an SMSF future that will be better for all stakeholders, especially the consumer, but expect to experience much more turbulence ahead of the calm water.”

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