Graeme Colley

Understanding the self-managed super fund lifecycle and knowing how to use that knowledge to benefit clients is the theme of the 2015 SMSF Professionals’ Association of Australia (SPAA) National Conference – the pre-eminent event on the SMSF calendar.

The conference, to be held in Melbourne at the Convention and Exhibition Centre from 18^–20 February, will be appropriately titled “Lifecycle” and boasts more than 36 conference sessions, 50 expert speakers, the world’s largest SMSF exhibition and numerous networking opportunities with like-minded professionals.

Graeme Colley, SPAA’s Director Technical and Professional Standards, who heads the National Conference committee, says: “Every year we face the challenge of making the national conference bigger and better than the year before.

“We know the importance that our members place on the National Conference in terms of technical content, industry updates, networking, and socialising, so the onus is on us to ensure it continues to be the premier event on the SMSF calendar

“Once again we have a high-powered list of speakers including another plenary session that will have the three regulators (ASIC, the ATO and APRA), as well as the Federal Treasury.

“I know from the feedback I got last year how much delegates got from this session, and I am confident the representatives of these four key government bodies will again deliver some fascinating insights into the SMSF sector and the superannuation industry more broadly.

“We have also managed to entice academic Michael Drew to present on the topic of how behavioural issues and what people want influences decision making in superannuation, and Andrea will address the issue of “The SMSF advantage – For all life stages?”

“She will outline why SMSFs are unique and show how the current system is working well to meet the needs of Australians, highlighting the importance of the emerging SMSF profession to help trustees achieve their retirement goals throughout their life.”

Colley says the conference is not all about hard work. Over the three days there will be several social events as well as networking opportunities this event always affords time for.

Registrations are now open, with Early Bird offers available until 30 November, so make sure you secure your seat. In addition, there is the opportunity for industry professionals to sign up as a SPAA member to take advantage of the pro rata annual membership.

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Andrew Bragg

The first report on MySuper performance and fees released by APRA yesterday is a game changer for the way superannuation is reported, the Financial Services Council said.

Andrew Bragg, FSC Director of Policy said: “For the first time, Australians have APRA data which directly compares the fees and performance of MySuper products.”

“As of yesterday, APRA is showing true ‘apple with apple’ comparisons.”

“APRA data shows FSC members’ funds have outperformed industry funds since MySuper started in January 2014.”

FSC members’ funds averaged net returns of 3.4  per cent compared to industry funds at 3.18 per cent since the commencement of MySuper.

“This is evidence that MySuper is delivering both transparent, comparable information and lower fees,” Mr Bragg said.

“This is good news for 70% of working Australians who do not choose a superannuation fund.”

Mr Bragg said:  “Fees can be further reduced if the industry fund-dominated default superannuation market is opened up to competition.”

“MySuper has been a game changer for the default superannuation market.”

“Industry funds are now more expensive and offer lower returns than FSC member funds, but maintain a monopoly on default contributions through the Fair Work Commission process.

“While the FWC process continues, millions of Australians will be missing out on the benefit of lower fees and higher return MySuper products offered by FSC members ,” he said.

“Superannuation is a long term investment. This is why fees and performance are important.”

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Blueprint needed for financial system overhaul: Erskinomics Consulting

The Financial System Inquiry (FSI) should seize the moment and recommend an overhaul of the regulation of Australia’s financial system, says Alex Erskine, managing director and founder of Erskinomics Consulting.

He says the “efficient markets” regulatory philosophy that was the centrepiece of the Wallis/Costello approach to regulation failed in the GFC – and now is the time to recalibrate the regulatory architecture.

In a paper titled “Regulating the Australian financial system”, one of four papers that form part of the Australian Centre for Financial Studies’ Funding Australia’s Future initiative, Erskine argues that the Council of Financial Regulators (CFR) – a legacy of the Wallis Inquiry – should have a far greater role in regulating the system.

“This Wallis inspiration relies on clubby cooperation is not necessarily proactive and is unaccountable. It has worked well so far, but the future is likely to be more testing.

“But by recreating it as a statutory body with an independent non-executive chair, publishing an agenda and minutes for regular meetings and accountable half-yearly to parliament, the CFR should have two roles: to oversee the effectiveness of regulation and to be perpetually paranoid about systemic financial instability and make decisions on the conduct of macro-prudential policy.

“The Council could contract the RBA and other regulatory agencies as appropriate to implement its macro-prudential policy decisions, resolving the confusion between the RBA and APRA over macro-prudential policy.”

The Erskine prescription for a new regulatory framework also envisages revised roles for the major players in the system.

“The Reserve Bank’s responsibility for financial stability should be transferred to the CFR. This will let the council determine macro-prudential policy actions on a pre-emptive basis while allowing the bank to implement monetary policy with a sole focus on inflation.

“The Australian Prudential Regulation Authority (APRA) needs to have a mandate to protect taxpayers from the risk of bail-outs made explicitly part of its objectives.

“It should also be required to prepare a risk appetite statement, agreed with the government, and set capital and liquidity standards for prudentially-regulated institutions to protect taxpayers from all except a periodic ‘unavoidable’ financial crisis. To clarify its role and responsibilities, APRA’s competition mandate, which it has largely overlooked, should be transferred to the Australian Competition and Consumer Commission (ACCC).

“The Australian Securities and Investments Commission (ASIC), in a post GFC world, should have one objective: market integrity. It should be equipped with effective data, analysis, policy and regulatory tools to perform this task, with funding remaining with taxpayers to limit risk of regulatory capture. Its competition and consumer responsibilities should be stripped out and assigned to the ACCC.

“Finally, the role of the Australian Competition and Consumer Commission (ACCC) should be reinvigorated and made a member of the CFR.

“A vigorous competition regulator will be more important for Australia’s future: key competition questions will arise from the increasing vertical integration of the dominant banks into all aspects of finance and the implications of the emerging international trend to ring-fence core banking from riskier trading businesses. The ACCC should receive the competition mandates currently held (and generally ignored) by APRA and other regulators.”

Erskine says the “efficient markets” philosophy depended on banks and their investors fearing they can go bust and consumers fearing they will lose their deposits, creating sufficient incentives to manage their risks and, in doing so, and aided by prudential regulation, perpetually nudging the financial system towards equilibrium even while permitting individual failures.

“This unreality was made obvious in the systemic financial shock of the GFC. In Australia, every prudentially regulated entity became too-big-to-fail, key borrowings were guaranteed by government, and deposits are now largely insured through the Financial Claims Scheme (FCS), all in contradiction to the Wallis Inquiry intellectual underpinnings.

“The GFC showed beyond doubt a determination from governments, including the Australian Government, to limit through policies and regulations the risk and damage of systemic crises. In doing so, taxpayers were put at great risk, though fortunately in Australia the cost of support measures remained contingent and were not drawn on.

“It is time now to recognise the reality of this support and to devise a regulatory system that limits the risk to taxpayers in future crises. Financial system regulation, especially prudential and macro-prudential, needs to be reassessed in this ‘systemic stability’ light, and the risk to taxpayers appropriately managed.”

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Gareth Hall

The arbitrary transfer of thousands of personal superannuation accounts to MySuper is already underway and members have absolutely no recourse for any investment losses or life insurance lost as a result.

Corporate Super Specialist Alliance (CSSA) Treasurer, Gareth Hall, said part of the MySuper legislation requires ‘flipped members’ – those who were in a corporate superannuation plan but who are now in a personal superannuation plan – to be transitioned to a MySuper fund by 1 July 2017. “However, APRA has told at least one fund that member accounts which are receiving ongoing contributions have to be transitioned to MySuper now.”

Mr Hall said he spoke with one member who had a superannuation balance of $126,000 and $1,672,000 death and total and permanent disability (TPD) insurance. “He was about to go on extended leave overseas and would have missed the opportunity to opt in to retain his account,” Mr Hall said. “If this member had been arbitrarily transitioned into a MySuper fund, his current insurances would have been cancelled.”

When made aware of the issue, Mr Hall said the member was outraged and elected to remain in his current fund. “Imagine the disastrous outcome for his family if the cover had been cancelled and something went wrong. We believe many members are not aware of the problem and consequently are losing millions of dollars in insurance cover, cover which they may never be able to obtain again.”

MySuper legislation provides no recourse if investors lose a benefit as a result of the compulsory move to My Super. “If these ex-corporate superannuation members do not state that they wish to keep their superannuation arrangements as is, they will all be transitioned,” Mr Hall said. “How can any Government legislate the removal of such important benefits from taxpayers, and offer them absolutely no avenue for compensation?”

With a required notice period of three months, at least one large fund manager has been contacting members to alert them to the problem. “They have had huge success in keeping members in existing arrangements, because these members are engaged with their super and know their arrangements are right for them,” Mr Hall said. “It doesn’t make sense that the first people being transitioned into a MySuper arrangement are those who are the most engaged. Our gravest concern is what will happen to members who are not engaged. What if they have changed address or are on leave and are not able to be contacted? They will just lose out.”

Mr Hall said before the introduction of MySuper legislation, the Death, TPD and Salary Continuance insurance arrangements of members transferring from an employer plan remained intact within personal accounts, as did the members’ investment selection.

“Despite our having brought this issue to the attention of both the Labor and Liberal Governments on a number of occasions, the recommendations from the Senate Committee do not address the issue, nor do they address the conflicted remuneration dilemma that results from corporate superannuation specialists providing advice to their clients,” Mr Hall said. “There are still flaws in the interaction of the Future of Financial Advice (FoFA) reforms and the MySuper legislation that are causing these problems. They need to be fixed – fast.”

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Ciaran Whelan

Investec Bank (Australia)  announced last Friday that its parent company Investec Holdings (Australia), has entered into a definitive agreement with Bank of Queensland (BOQ) to sell its Professional Finance business which includes its deposits business, and its Asset Finance & Leasing businesses in Australia.

The agreement is subject to customary closing conditions such as counterparty and financier consents and approval from the Australian Prudential Regulatory Authority (APRA).

Following the sale, the Investec Group will cease to own an ADI but will retain a significant business in Australia focussing on its core strengths across Corporate and Institutional Banking, Property Funds Management and Investment Banking.

Late last year, Investec announced it had appointed independent advisers to identify alternatives for its Professional Finance and Asset Finance & Leasing businesses.

The businesses are being sold as a going concern with a total team of over 310 people transferring to BOQ.

“The agreement with BOQ represents a significant opportunity for both the Professional Finance and Asset Finance & Leasing businesses as they pursue their next phase of growth,” said Investec CEO Ciaran Whelan.

“Investec Group remains committed to the Australian market. We have an experiencedleadership team with a focused business backed by a strong global balance sheet and parent. We are in a good position to concentrate on what we do best within our specialist niches and to demonstrate our distinctive approach.”

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Andrea Slattery

Allegations that SMSFs don’t provide the same level of information about their asset allocation as the larger APRA-regulated funds are simply spurious, says Andrea Slattery, CEO of the SMSF Professionals’ Association of Australia (SPAA).

Slattery was responding to a submission to the Financial System Inquiry (FSI) that alleged there was a lack of information about the asset holdings of SMSFs and that this made it difficult to assess the extent of any risks in the system.

“This really is a case of the pot calling the kettle black – and is so far removed from the reality.

“Look at the annual returns required to be completed by SMSFs and APRA-regulated funds and it’s easy to see which sector provides the greatest level of detail. It’s all there in the Australian Taxation Office (ATO) files, SMSF by SMSF.

“ATO reports on SMSFs not only disclose the number of new funds, details about members, their ages and how much they are earning, but also disclose information about the fund’s investments split into 19 investment categories. By contrast, APRA-regulated funds report under the cover of broad aggregates that reveal nothing specific about their asset allocation

“Significantly, overseas superannuation funds that are much larger than their Australian counterparts currently provide significant and specific information as part of a continuous disclosure regime that enables their members to gain immediate access to fund investment allocations on a daily basis.

“Changes to reporting of investment allocations by APRA were highlighted in the last APRA quarterly report showing the aggregates all fund assets, as well as the number of entities with more than four members. This broad level of detail provides less insight into APRA-regulated funds than previously reported.

“Now this broad information will have to be reported annually, although this still lags the SMSF sector where significant levels of detail are reported quarterly and annually in a transparent and comprehensive way by the ATO.

“The fact is there has been huge resistance by the APRA-regulated funds, even after the current superannuation system has been operating for more than two decades, to disclose their investments.  This is something they will need to do, to some degree, in the future ­– but still not to the same extent as SMSFs,” she says.

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Quality advice should underpin super choice: SPAA.

The $10,200 penalty imposed by ASIC on Media Super is a warning shot across the bows of APRA-regulated funds about their public commentary on SMSFs.

Graeme Colley, Director, Technical and Professional Standards, of the SMSF Professionals’ Association of Australia (SPAA), says it has always been the association’s view that there is room for all superannuation sectors and comparisons between them is an “apples and oranges approach”.

“SPAA’s position is that the right superannuation fund depends on a person’s circumstances, and the best way to determine which fund is the most beneficial is to get professional advice.

“There are many factors to consider such as the stage of your working life, the level of engagement desired and the amount of retirement savings you have in superannuation.

“Some funds may limit membership while others may provide a range of benefits in excess of what you want.

“Why would you want to be a member of a fund that provides mainly pensions to members when you are in your 20s or 30s and have a long time to go before you retire?

“On the other side, if you have retired a fund that provides the majority of its services to members in accumulation phase may not be the right fund for you.”

Colley says for people to make the appropriate choice they need to get objective and unbiased advice from someone who has a broad knowledge of superannuation as well as the ability to analyse the features of the various funds that will work in their situation.

“Your accountant or financial planner who has recognised skills in all types of superannuation funds is the best to assist,” he says

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Andrea Slattery

The SMSF Professionals’ Association of Australia (SPAA) has dismissed calls for the Australian Prudential Regulation Authority (APRA) to regulate self managed super funds as being “willfully ignorant” of how this sector works.

SPAA CEO Andrea Slattery says: “The simple fact is APRA’s mandate under the SIS legislation is to regulate funds solely on a prudential basis.  The reason for this level of control is to ensure trustees who are removed from fund members have substantial and robust systems in place to protect those members’ interests.

“This differs to SMSFs that have a more detailed and technical oversight to ensure the amounts being accumulated for members is directed to the sole purpose of building retirement savings.

“As the Wallis report recognised, small funds, where the fund member and trustee typically overlap, require a unique approach to achieve the same regulatory outcome as the larger publicly available funds. This is the same as the Corporations legislation where there are different requirements for public and private companies.”

Slattery says for APRA to be allowed to apply prudential principles to SMSFs would result in significant changes in non-compliance because prudential supervision is general and broad based.  This only works where large funds are involved due to their magnitude and scale of operation.

“It also ignores the fact that the current regulator, the Australian Taxation Office (ATO), is one of the premier government agencies that competently operates in a high volume processing environment.  When you consider there are more than half a million SMSFs, then that’s exactly the type of agency that’s required for SMSFs.”

Slattery was responding to a survey by the publication Super Review at the recent Association of Superannuation Funds of Australia (ASFA) conference that found 75.5% of respondents believed there should be a single regulator (APRA) for all types of super funds, and 74.4 per cent also believed that SMSFs were being inappropriately regulated.

“It really is time this old chestnut was buried once and for all. Where is the evidence to say that SMSFs are being inappropriately regulated? It’s never cited.

“Let’s just remember that when the Wallis Inquiry handed down its report in April 1997, it recommended that the ATO be responsible for SMSFs, and this took effect in 1999.

“Significantly, when 187,000 SMSFs were transferred to the ATO at this time, a report by the Australian National Audit Office (ANAO) said that the ATO suspected that ‘compliance by a large proportion of these funds (administered by APRA’s predecessor, the Insurance and Superannuation Commission), had been poor’.

“ANAO added that the ‘ISC and APRA had undertaken a limited amount of compliance work on these funds in comparison to larger funds’. By 2009, an ATO survey of new trustees found 99% were compliant. From SPAA’s perspective, this is the exact reasoning why the ATO should administer SMSFs.

“Finally, the Cooper Review, in its final report in 2010, said the SMSF sector is ‘largely a successful and well-functioning part of the system’ and made no recommendation for its regulation to be shifted from the ATO.”

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SMSF assets grew to $531.5 billion in this period for an increase of $24.2 billion, or 4.8%, and over the 12 months to 30 September 2013 grew $76.5 billion or 16.8%.

The SMSF Professionals’ Association of Australia (SPAA) chief executive officer Andrea Slattery says this growth illustrates the ongoing strength of the SMSF sector and the desire of people to take control of their own retirement income.

“There can be no doubting this trend with the APRA figures also showing the number of funds grew by 6933 or 1.4% in the September quarter or by 31,375 or 6.5% for the 12 months to 30 September.

She says that SPAA expects the growth in SMSF funds under management to continue with the increased contribution caps for older Australians taking effect, stronger returns in equities and property markets and greater investor confidence.

The total superannuation pool grew to $1.747 trillion, up by $129 billion or 8%, in the September quarter, and for the 12 months to 30 September it grew $288 billion or 19.7%.

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Forty seven superannuation funds representing over 4 million members have for the first time completed the successful lodgement of electronic reports to APRA as part of the new reporting standards outlined in the Stronger Super reforms.

Orient Capital, the technology solutions provider, worked collaboratively with superannuation administrators AAS and Link Super to meet the 28 October due date for APRA reporting, in what is believed to be the first successful electronic lodgement of fund reporting as part of SuperStream measures to automate the industry.

From the September quarter, APRA substantially increased the information required to be reported by superannuation funds while reducing the time funds have to report.

Paul Gardiner, Chief Operating Officer of Orient Capital, said: “What we have achieved using a complete electronic end to end solution for APRA reporting has not been achieved by any other superannuation administrator as far as we are aware. It is a testament to our staff, client focus and broad expertise of the different subsidiaries in Link Group.”

Prior to this electronic solution, reporting to APRA was a manual process involving spreadsheets. However, with the increased requirements and tighter deadlines of Stronger Super, manual processing of data to report to APRA would be an unsustainable solution.

“By using Orient Capital’s miraqle platform, we have been able to load and validate large amounts of complex accounting, investment and Trustee information and lodge via APRA’s electronic reporting portal. Funds now have access to all their data and can sign-off via the miraqle platform, making the process completely electronic,” said Mr Gardiner.

For this quarter, Orient Capital electronically reported for 47 superannuation funds, drawing information from three administration systems, three accounting systems, four custodians and multiple asset managers.

Key requirements from superannuation funds using electronic APRA reporting were usability, traceability and auditability.

Commenting on the electronic reporting experience as a client, Megan Bolton CEO of Kinetic Super said: “The provision of the miraqle APRA Reporting product by Orient Capital was a key factor in the successful submission to APRA of our reporting obligations under the new reporting standards.

“The co-ordinated import of data from the fund custodian and administrator into miraqle and the workflow built into the product enabled progress to be monitored at every stage and  the process to be completed on schedule, while the audit and traceability functionality built into miraqle provide the confidence that we are meeting APRA expectations in that area.”

Mr Gardiner said the group would continue to develop its electronic reporting solution to meet future obligations.

“We’ve worked very closely with the senior technical staff at APRA throughout this journey with a significant amount of end to end testing undertaken to ensure the best possible outcome for our clients,” he concluded.

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