Tackling technical changes  

The legislative changes to superannuation, including the total superannuation balance and the transfer balance cap, have meant that having specialist SMSF knowledge and access to up-to-date records is critical. The total superannuation balance, for example, has major implications for whether clients are permitted to make non-concessional contributions and have segregated assets in their fund. Keeping accurate data about this balance is therefore very important.  

Keep It Simple Super director Julie Taylor says that out of all the reforms stemming from the 2016 budget, transfer balance account reporting has been one of the most significant. The new reporting regime means that interim accounts often need to be done so that the reports can be lodged. For example, transition to retirement income streams (TRISs) can enter retirement at any point in the year, which requires a TBAR to be lodged. This means that SMSF administration has largely moved away from being a year-end processing environment, Ms Taylor says.  

While SMSFs with balances less than $1 million are not required to report on a quarterly basis, SMSF Alliance principal David Busoli says that, ideally, events should really be reported on a monthly basis so that it aligns with reporting time frames of the public offer super funds. This also eliminates the need to distinguish between the different reporting time frames that are required for different clients, Mr Busoli says. 

Where SMSFs report annually or even quarterly in some instances, this can increase the risk of SMSFs inadvertently breaching the cap or receiving unnecessary excess transfer balance determinations, which require action by advisers and administrators to address, according to SuperConcepts’ general manager of technical services and education, Peter Burgess. 

“In situations where clients are commuting pensions and rolling them over to APRA funds, there is a high likelihood of incorrect determinations being issued by the ATO because the APRA fund has to report the commencement of the pension 10 days after the end of the month, whereas the SMSF may not have reported the commutation from their fund until a long time after that,” Mr Burgess explains. 

“So, there is a high risk of their pension balance being double-counted and an unnecessary excess balance determination being issued.” 

He also notes that, in many cases, the administrator of the SMSF is not aware of balances that clients have in other funds, so they’re actually not in a position to determine whether an SMSF should be a quarterly or annual reporter. 

Managing this reporting has been made trickier by the fact that the only way professionals can access their client’s transfer balance account is by getting them to log in to the MyGov site and getting them to print it out.  

At the moment, it is difficult to understand what a client’s position is, Mr Busoli says. 

“We know exactly what it is in relation to our own software, but we are to a certain extent guessing when it comes to the involvement of other super funds and possibly double reporting from the previous accountants or administrator,” he says. 

It is also difficult to obtain information about a client’s lost super, Ms Taylor says, which could potentially impact their total super balance. 

“We used to check lost super as part of our onboarding process when we had the super seeker [search tool], but now they’ve moved all of that to MyGov.  

“I just don’t think everyone is engaged with MyGov. When we’re talking to advisers, often their client won’t have MyGov and then they’ve got to run through the process of getting them on there.” 

Ms Taylor says that it will be far easier if the ATO has this information on their systems so that every professional dealing with the fund is able to access that data. 

“We’re relying on the client to know what they’re doing with the MyGov account, and realistically, not all clients have computers. There are a large proportion of SMSF clients that are older and they have to go to the library to hook up to their MyGov account,” she says. 

“[Due to] the practicalities of it, I think it’s definitely far better if the parties that they’re dealing with can look after all of that instead of the poor old client having to go and look for it.” 

While the ATO is working towards making transfer balance account information available to tax agents through the portal, at time of writing, this isn’t expected to occur till March this year.  

“Once it is available, that might make it a little bit easier, but it’s still a matter of whether that information is still going to be correct and how easy it will be to change if it’s not correct,” Ms Taylor says. 

She has already encountered reporting errors from public offer super funds which could impact the accuracy of this information in the client’s transfer balance account.  

“You have situations where a retail fund will report a rollover and they’ll have the wrong components and you go back to them and ask them to change their records and you’re on a call centre for hours on end,” she says.  

She also notes that where a firm is providing administration services for other SMSF firms, it’s important there is communication around who will be lodging TBARs for the client to avoid double-ups with reporting. 

A message from SuperConcepts

Greater scrutiny over SMSF records  

Following the outcomes of the royal commission, the level of quality provided by financial services providers is now under far greater scrutiny, both by the regulators and clients themselves. SMSF administration services are no exception to this, says Ms Taylor. In addition to this, there were two prominent litigation cases last year, and while they both involved SMSF auditors, both cases concerned the underlying investments made by the fund. This is expected to have flow-on effects for administration. 

Given the outcomes of these cases, SuperConcepts executive manager of SMSF technical and private wealth Graeme Colley says that SMSF auditors will be demanding far more thorough and comprehensive data about investments so that they can assess their recoverability.  

“If the auditor is not satisfied or they can’t see that it’s recoverable, then they’ll likely qualify the accounts of the fund, fill out a contravention report and let the ATO work out whether the investment is recoverable under the operation of the SIS legislation,” Mr Colley warns. 

It is now an environment where a lot more care needs be taken, Ms Taylor cautions. 

“A few years ago, a lot of people felt that administration was a race to the bottom on price, everything will become push button and we’ll just rely on the technology. It’s actually shifted back away from that now with all of the things happening in the space,” she says. 

“If we want to keep these vehicles for retirement, the emphasis needs to be on the care taken in looking after the fund.” 

Ms Taylor says that her firm has taken over funds in the past where the fund has just been put through a set of software without anyone actually looking at it.  

“It’ll be simple things like there being no value for listed shares because it’s an obscure type of listed share. There are plenty of providers that do a quality job, but there are still a lot that don’t,” she warns. 

She expects that service providers who cut corners will be weeded out over the next few years. 

“ASIC is also looking more and more at auditors. Off the back of that, they’re going to be looking through the types of records that are provided by the administrators or whoever does the work that goes to the auditors,” she says. 

Business decisions with administration 

Some of the strategic business decisions around SMSF administration relate to trends such as outsourcing and offshoring. Planet Consulting founder Rob Pillans explains that outsourcing generally means the accounting firm or advice firm using a third party outside the business.  

“That third party could be offshore or it could still be in Australia. 

“The most common situation that I’m seeing is that SMSF administration tasks are being sent offshore and I think that’s being driven by a desire to maintain or even increase margins in the face of some price pressure,” he says. 

“In many ways, the SMSF industry has been one of the leaders in offshoring. It’s been happening for quite a while and I meet a lot of firms who are now having that work done offshore. I think it’s a big part of our world now.” 

However, there are also examples of SMSF firms that are in multiple locations around Australia who will outsource certain types of work to smaller offices in regional locations, because they’ve got the capacity to do the work there, he explains.  

In terms of offshoring, Mr Pillans says that there are a broad spectrum of firms who decide to go down this route. It’s not just the larger firms deciding to offshore but also some of the small- to medium-sized firms; however, there still needs to be a critical mass of funds for it to be effective. 

“Some of the offshore service providers who are offering these services would probably have a minimum number of funds that they would typically want to deal with,” he clarifies. 

Accounting firms who service 10 or fewer firms will likely hit barriers when trying to outsource their SMSF services, he says. 

Firms that only offer services to a limited number of SMSFs are facing lots of headwinds in general, he warns, and will need to make a decision whether they want to invest in this part of the business and scale up or exit the SMSF space completely.  

“In a period where we’re seeing massive technological and regulatory change, it’s dangerous to just dabble in the area of SMSFs,” he cautions. 

“If you’ve only got a very small number of funds that you’re looking after, I’m not sure that you really get the opportunity to get the breadth and depth of knowledge that perhaps is really needed.” 

It may not even be a small firm, but it only services a small number of SMSFs, he says. 

“We may see some further consolidation where some of the really small firms will actually now outsource both the management and administration of those funds to another firm,” he predicts. 

With greater emphasis being placed on specialisation and more education changes coming in, Mr Pillans says that it’s important that firms evaluate exactly what business they want to be in and what services they want to provide. 

“I would be encouraging all firms to really step back and look at the big picture and see where they really want to go with this and whether it’s even appropriate to be in this sort of business,” he recommends. 

“I think all the regulatory change hasn’t helped because firms are unclear about whether they’re allowed to give advice on given the changes to the licensing regime.” 

For firms that do plan to continue providing SMSF administration services, they may decide to change their billing method.  

“Accountants have historically billed the super fund on an annual basis, but they’re now doing a bunch of work fairly consistently throughout the year, so that’s now at a bit of a mismatch,” he says. 

Some SMSF firms have consequently decided to start billing on either a monthly or quarterly billing cycle which is more consistent with what they’re doing for clients with other services as well. 

Other firms, he says, are less unsure, because they’re worried about adjusting to a new billing method. 

“These are the sorts of conversations that are happening more broadly in the accounting space, but the more regular reporting for super funds has certainly prompted these kinds of discussions,” he says. 

Advantages and gripes with technology  

Developments in SMSF administration software have eliminated a lot of manual processes, improved access to information and eased some of the burden with regulatory reform, but there is still further to go. Most SMSF firms now use some form of cloud-based software for the administration for their clients’ funds, particularly in light of the push towards more regular reporting. Demand for access to real-time data from clients is also much greater now. 

Ms Taylor says that technology is getting better all the time, but it’s not yet at a point where it can be 100 per cent relied on. Data feeds can switch off every now and then, and then are still certain types of investments that don’t have any kind of feed, she says.  

“The idea of having real-time reporting for SMSFs and just pushing a button in order to have an accurate picture is unrealistic. That might work in a retail space where the number of total investments is limited by whatever the trustees have decided is a prudent set of investments, but in the SMSF space it’s so complex and it’s so varied,” she explains. 

“[Some investments] also have layers. They might be invested in a private unit trust, for example, but that unit trust has whole businesses or whole groups of properties sitting underneath it. It’s a great goal to work towards, and for some clients with vanilla funds, it is achievable, but I don’t think you’ll ever get there for all funds.” 

Mr Busoli has also encountered issues with data feeds dropping out unexpectedly and or data being duplicated. Platforms containing separately managed accounts are especially problematic, he says. 

Continually rectifying the errors that are found in data downloads from platform providers is one of the biggest challenges for his firm. Mr Busoli hopes that with the move to more regular reporting, the issue will receive more attention. He also believes that a quieter period in terms of legislative change may give platform providers and software firms more time to improve the accuracy of the feeds and iron out bugs.  

Mr Pillans expects that SMSF administration technology will soon reach a point where it replaces the need for outsourcing and offshoring.  

“The push to offshoring was driven by the price pressure on margins and the need to perform tasks at lower cost. The degree of automation and machine learning that is happening in SMSF administration software will mean that the types of tasks that are currently being offshored will instead be done by the software,” he explains. 

While it’s difficult to predict the timeline, Mr Pillans predicts that one day SMSF software will reach a point where it is able to undertake every single process part of the administration process. 

“We’re going to see lots of interesting things unfold over the next few years because it continues to develop at a rapid pace,” Mr Pillans says.