Independence under attack

The Small Independent Super Funds Association (SISFA) is highly differentiated from other organisations by being professionally untainted, with no conflicts of interest and no product selling. Strictly independent, SISFA is therefore uniquely placed to best represent the interests of all stakeholders in the SMSF sector.

Minimum SMSF member balances

The current issue of minimum SMSF member balances is being fought over by various institutions that have vested interests in erecting barriers for entry into the SMSF sector in order to protect their business from erosion by SMSFs.

This issue requires the clear, independent voice of SISFA to bring clarity and reason into the debate so that a sensible and effective solution can be reached, which best addresses regulatory concerns, maintains a fair competitive market and satisfies the needs of individual Australians wanting the right to choose.

The Cooper review panel, and later the government, dismissed the idea of a $200,000 minimum SMSF balance on the basis that “their existence is generally due to a conscious choice of the members” and also a rapidly diminishing percentage of small SMSFs in the sector.

Notwithstanding this, ASIC has recently made statements to the effect that it considers a minimum fund balance of $500,000 to be more appropriate.

In addition, representatives of large public offer funds have been advocating changes to tax capital gains made by SMSFs in pension phase under the guise of a level playing field. There is little doubt the principal purpose in lobbying for such changes is to help the large funds capture the SMSF administration market and then cross-sell into their institutional products.

SISFA considers this issue a threat to independent advice and to fair and open competitive markets, and contrary to the best interests of over 1 million voting Australians. It is on this basis that SISFA considers a minimum balance imposed on SMSFs to be inappropriate and potentially discriminatory. All super funds should be regularly reviewed, large or small, and provided there is full and transparent disclosure regarding the consequences, costs and benefits of changing one super fund for another, then surely it is the member’s right to choose.

Independent professional co-trustees

As members of SMSFs age, more situations are arising where one or more trustees are either incapable of acting in that capacity or are looking for alternatives.

The current rules allow trustees to either wind up the fund, move to an expensive small Australian Prudential Regulation Authority-regulated entity or shift the decision-making burden to other family members by appointing a legal personal representative.

A solution SISFA advocated to the Howard government early in 2007 was that qualified independent SMSF professionals should be allowed to fill this role to provide ongoing assistance and coaching to trustee/members while improving the SMSF’s compliance outcomes. SISFA suggested the reform of approved compliance trustees (ACT) would alter the focus of SMSF compliance from an annual-in-arrears system to a day-to-day regime. This would help bring the sector into line with the rest of the super industry and raise the regulatory standards of the SMSF sector significantly.

Approved compliance trustee

The introduction of an ACT as an alternative trustee structure would engender greater involvement by independent professionals in the daily decision-making processes of SMSFs. This approach draws on a successful system in the United Kingdom where small self-administered schemes exist. These funds, which have less than 12 members, must have an independent professional as one of the trustees.

Drawing on this system, SISFA’s recommended ACT requirements are that the independent professional:

  • must not be connected with a member or trustee,
  • must be a co-owner of assets of the fund, let
  • must be a co-signatory to all fund bank accounts,
  • must report certain transactions to the Australian Taxation Office (ATO), and
  • must be an independent professional or entity licensed by either the ATO or Australian Securities and Investments Commission after meeting educational standards.

The benefits of having some form of ACT is:

  • there is daily oversight of SMSF transactions by an independent professional other than the members/trustees,
  • it should lead to greater day-by-day scrutiny and ultimately better compliance outcomes,
  • the ATO’s compliance program could be far more effective and focused,
  • education campaigns could focus primarily on far fewer participants, and
  • minimising alleged inappropriate geared property acquisitions

Current professional service providers could become ACTs subject to an accreditation process.

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