Is your accountant SMSF ready?

Most Eureka readers with SMSFs take the relationship with their accountant for granted. But new rules threaten to change many of these relationships. Trustees and beneficiaries of SMSFs need to understand what is ahead and what they should now ask their accountants.

For decades now, accountants have played a significant role in the establishment of SMSFs. And while accountants don’t normally give detailed investment advice, they have been an important sounding board for a wide range of investment-style issues. This includes both the establishment, and the structure of self-managed superannuation funds.

In the firestorm of regulation that came with the previous government, the bureaucrats and politicians devised a set of new regulations for accountants. In the process, the relationship between your accountant and yourself may change, depending on what the accountant does.

Today I am going to describe an overview of these changes, but the bottom line message is that it is worth discussing with your accountant exactly what strategy he or she will be adopting in this situation, and what the constraints will be on the help your accountant can give you.

And going with that is an alert. Many accountants will take a shortcut and link with expensive systems providers and suggest that you put your SMSF into these systems, which are usually owned by a bank or large institution. That may suit you well, and some of the systems are excellent. But the great danger with putting yourself in the hands of a big institution is that you’re suddenly being entrapped into the high fee arena that is quite unsuited to SMSFs. You may need to change accountant to avoid being saddled with high-cost services.

SMSF advice changes ahead

So let’s look at what decision almost every accountant faces. Currently your accountant can set up your SMSF and give you advice about the structure, and can discuss general investment topics – albeit that the discussion is fairly restricted. But those client interaction rights come via an exemption that will end on July 1, 2016. From then, your accountant will need to be authorised under a licence to set up SMSFs and give advice on their structures – let alone talk in general terms about investments. What many accountants are now doing is gaining an Australian Financial Services Licence so they can talk broadly about your investments and discuss strategies. I believe this is what most accountants should do so they can continue to help in SMSFs. You need to ask your accountant now about his or her intentions. The alternative strategy for an accountant is to link in with a chain of financial planners and operate under that umbrella. That is cheaper and easier for the accountant, but normally such a link would involve larger fees for you.

Of course, accountancy fees for SMSFs will rise because, thanks to the regulation-prone previous government, accountants are now saddled with the task of obtaining licences for SMSF registration and advice, plus the normal registration with the Tax Practitioners Board. Those multiple requirements cost accountants time and money, particularly the SMSF qualifications, which involve extra study. Those extra charges will have to be amortised over the accountant’s client base. But they will normally be a lot cheaper than accountants linking to the services provided by banks and big institutions.

The Australian accounting profession has done the nation a tremendous service in setting up SMSFs. It has greatly improved our superannuation system and made it a lot less costly, while enabling individual investment strategies.

Irrespective of what services your accountant may provide, for many people there is a clear role for financial planners. The financial planners’ problem has been their charges. Any person who does not have sufficient money to fund their own retirement and relies on the government aged-pension needs a financial planner to maximise the pension given the complexity of various means tests. This is a very skilled operation, and not easily carried out by amateurs.

Valuable investment advice

In the past, the people who maximised government pensions often charged large fees. For most practitioners those fees have now come down, although good government pension maximisers are worth their service. When it comes to people with larger sums, who do not want to use the government pension, there is a relatively simple system that is available to all. You make a decision as to how much money you want to invest in local equities, overseas equities, listed property and interest-bearing securities plus cash.

That is the sort of advice an accountant is well qualified to give you, because it links to his or her knowledge of your position and risk profile. Many people want to then manage their security purchases within those parameters. Some simply buy investment stock to fill their various allocations. So, for share investments Australian Foundation Investment Co, Argo Investments or Vanguard, or some of the other listed investment companies, can do the job very well and at low cost. Overseas investment can be done on an index basis via Vanguard, but also Templeton and others. Listed property trusts led by GPT can provide a spread of property investments, and of course bank deposits are available from your own bank or by shopping around. That is a very simple portfolio strategy that doesn’t need a lot of high-cost advice. If you are looking to play the sharemarket a stockbroker is probably the best way to go or you can do it yourself

Gaining SMSF accreditation

Courses to enable accountants to comply with the new rules are offered by most Registered Training Organisations to meet the obligation for this, set out in ASIC’s Regulatory Guide (RG) 146. This includes the major accounting associations such as CPA Australia and the Institute of Chartered Accountants.

The National Tax and Accountants’ Association (NTAA) has organised with Pinnacle Financial Services Academy to offer the “SMSF Personal Advice Course” that meets the requirements an accountant will have to be authorised under an Australian Financial Services Licence to provide advice on superannuation (including self-managed super funds).

Courses such as the NTAA course cost in the vicinity of $850 to $1,200, with a course covering all the basic aspects of ASIC’s RG146 costing approximately $2,000, less discounts for members.

Study for these basic courses would take anywhere between 20–50 hours, depending upon whether the accountant has worked in the self-managed super fund area before.

These are not big cash costs, although time is important.

You should start discussions with your accountant when you are looking at your 2012-13 accounts return. If they have been completed and filed, then pick your next visit to have the discussions.