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Traditional administrators still have a role

Despite the growing discussions regarding the merits of automated SMSF administration platforms, Olivia Long argues a valuable place for more traditional service providers in this arena still exists.

There is an ongoing debate about the role of the SMSF administrator being made redundant due to technology. This is not to say automation won’t create significant efficiencies, but, in my opinion, the administrator’s role is secure for the conceivable future. Let me explain why.

At the recent SMSF Association National Conference, the key focus of the sessions, and the main talking point for delegates, were the changes ushered in with the legislative package parliament approved late last year. It was evident in the sessions and in the many conversations over cups of coffee that a healthy number of delegates remained unsure about all the ramifications emanating from this legislation.

In the main, these delegates were SMSF specialists; they spend significant time and money keeping abreast of industry changes, of all legislation and technical matters relating to an SMSF. So if they remain confused by the legislation, what about the trustee?

Make no mistake. It would be almost impossible for any SMSF trustee to handle the accounting and compliance for their fund unless they were an accountant and, even then, they would have to spend time and effort educating themselves on all aspects of this complex legislation.

Remember the current average age of an SMSF trustee is between 60 and 70. Do you think somebody about to enjoy or enjoying retirement wants to spend their time poring over the fine detail of legislation?

When we recruit new accountants it is accepted it will take months of training to bring them up to speed with all the intricacies involved with overseeing an SMSF. It’s not only newcomers; updating the firm’s collective knowledge on legislative and regulatory change is time-consuming but vitally necessary. To think a lay person could do it themselves borders on the absurd.

Ensuring an SMSF is compliant is where trustees are most likely to come unstuck and where they need advice. Quite simply many trustees simply don’t educate themselves on what they can or cannot do with their fund. In the case of our business, 80 per cent of our clients have advisers, yet we still see the same common errors happening time and again.

One common mistake is for trustees to pay fund expenses using personal money. In this instance, how will software identify a missing transaction? Even worse we see trustees accidentally paying for personal expenses from an SMSF bank account by simply selecting the wrong online account when making the transaction. Even if software can identify a breach how is it going to be dealt with? If you don’t have SMSF specialists how are people going to rectify any error?

Some of the more common breaches we encounter include:

  • Breach of financial assistance rules. Borrowing money only to repay it a short time later.
  • Early access to super. Trustees set up a fund and withdraw the money for personal use. I am thoroughly convinced this is one of the biggest arguments for SMSFs needing third party administrators and not being allowed to employ do-it-yourself processing.
  • Related party transactions. Many SMSF trustees simply don’t know you cannot rent your residential property to a related party.
  • Inflation. Trustees failing to apply CPI increases.
  • Property. Failing to obtain formal valuations for commercial property.

It’s not just compliance. Despite all the talk about technological advances for SMSFs, it’s still in its infancy. SMSF software relies on data feeds from investment providers, and these feeds are far from reliable.

Even from the big four banks feeds can drop out. Some major institutions don’t even provide them. ING Direct has one of the more popular cash products on the market, but does not provide a data feed, forcing information to be chased manually.

There is no technology available to capture data about unlisted assets, yet this is a growing asset class for many SMSFs, and therefore the information needs to be input manually. Property too is a long way off automation. Property investments require human interaction to process the acquisition, review it from a compliance perspective, ensure ongoing compliance, and handle the bookkeeping.

There’s no argument that technology will continue to change the way our industry works: I’m a huge advocate for embracing technology. However, it’s not likely that we’ll see the early exit of SMSF administrators. And besides, we have a secret weapon, we just know from long (and bitter) experience that governments will keep changing the legislation, making it that much harder for trustees.

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