SMSF Advisers are ready for FoFA ‘best interests’ duty but concerned about auditor registration and the proposed banning of off-market transfers.
The majority of SMSF professionals are well prepared for the ‘best interests’ duty under the Future of Financial Advice Reforms (FoFA), but are concerned about proposed new rules for self managed super funds under the Stronger Super reforms, according to a survey of SMSF professionals conducted by the Self Managed Super Fund Professionals’ Association (SPAA).
The 2011 SPAA Technical Conference Advisor Survey obtained the views of more than 360 SMSF professionals, including accountants and financial planners. The survey found the FoFA ‘best interests’ duty would not impact 81% of those surveyed as they were already acting in the best interests of clients, while 64% said the banning of volume-based payments would not impact their business either.
“Most SMSF professionals already act in the best interests of their clients and, having been aware of FoFA for some time, the SMSF sector has adjusted business practices where required. However, we believe the statutory ‘best interests’ duty outlined in FoFA will ensure professional advice standards will continue to rise,” said Andrea Slattery, SPAA CEO.
Mrs Slattery’s view was shared by SMSF professionals surveyed, with more than half (57%) agreeing FoFA would lift professional standards while only 15% disagreed. However, only 14% believed FoFA would encourage more people to actually seek out financial advice.
“Although most advisers don’t believe that FoFA will impact the uptake of advice, the standard of advice across the industry will be bolstered,” Mrs Slattery said.
Elements of Stronger Super unfavourable
The survey findings revealed that the most contentious issue for the SMSF sector arising from the Stronger Super reforms is the proposed banning of off-market transfers of assets between SMSFs and related parties. A resounding majority of survey participants (91%) agreed that this was unnecessary and would drive up transaction costs for SMSFs.
“SPAA has advocated strongly against the banning of off-market transfers because APRA-regulated super funds (which would not have the same obligations) would have an unfair advantage over SMSFs.” Mrs Slattery said.
The other issue of concern to SMSF professionals surveyed was ASIC registration of auditors. While 68% of those surveyed agreed auditor registration and a competency exam would lift professional standards and the quality of audits, more than half 56% believed a competency exam would also reduce the number of auditors and increase compliance costs.
“SPAA believes SMSF auditors who already undertake 20 or more SMSF audits a year should be exempt from taking a competency exam as a condition of ASIC registration. For these professionals, an entry level exam would do little to lift professional standards and would potentially add a costs burden in an area, which, for many firms, is a marginally profitable component of their business,” said Mrs Slattery.
Contribution caps and compensation
A resounding 79% of SMSF professionals surveyed believed the $50,000 a year contribution cap should be restored for individuals over age 50, and that the proposal that this cap apply only to individuals with an account balance under $500,000, be replaced with a $35,000 cap for everyone over 50, if the Government could also commit to raising the cap to $50,000 for everyone over 50 when possible.
“There was universal industry agreement that the current concessional superannuation contribution cap, together with a lack of adequate indexation, will deny thousands of Australians, who typically have greater financial capacity to save for retirement later in life, the opportunity to do so,” Mrs Slattery said. “SPAA has proposed what we believe is a workable solution which addresses both the right of individuals to receive tax concessions for making voluntary contributions to superannuation and the Government’s current budgetary priorities.”
Separately, some 61% of survey respondents said they believed that SMSFs should have access to a last resort compensation scheme if they suffer a financial loss due to criminal activity such as fraud or theft.
“While the details of a compensation scheme are yet to be discussed, it is clear that SMSF advisers believe a last resort compensation scheme is required for SMSFs,” Mrs Slattery concluded.