The current rapid growth of the self-managed super fund (SMSF) sector may present several challenges when a large number of trustees begin to reach an age where they either no longer want or are unable to run a SMSF.
Technical services director at SMSF administration firm Multiport, Philip La Greca, said the sector as a whole – despite currently experiencing rapid growth, may find a cap to that growth when more trustees start reaching an advanced age when running a SMSF becomes too much work or they start to lose their capacity to be a trustee.
As SMSFs become too much of a distraction, too time consuming or more complicated than the trustee’s needs, trustees will start to switch back to other products such as retail funds or annuities and will draw back out of the sector, he said.
The advice trustees get in that period will be crucial. Advisers and accountants will need to have some tough conversations to ensure trustees don’t reach a point where they have lost the capacity to make financial decisions, or act as a trustee without making succession plans for funds, La Greca said.
No-one likes to address the fact they may become mentally incompetent, but advisers need to be aware of the possibility before it happens, and make sure trustees have appointed an enduring power of attorney, he said.
If clients are going to get out of their SMSF, advisers will need to make sure well in advance that none of the investments are locked in long-term. Assets such as direct commercial property may take some time to dissolve, depending on the state of the market at the time, he said.
Institute of Chartered Accountants head of superannuation Liz Westover said the issue was becoming bigger. People are living longer, but accountants can use the annual occasion when they help clients with their tax returns to assess their needs – rather than waiting for an event such as illness to prompt a reassessment of a trustee’s needs.
Andrew Yee, director of superannuation at HLB Mann Judd Sydney, said clients are used to being able to look after their own financial affairs and can be resistant to handing over a degree of control. In those cases, getting the trustee’s children to move into the fund (if they are not already members) and taking on more responsibility as the dominant trustee can be an option.
SMSF Professionals’ Association of Australia technical director Peter Burgess said he didn’t foresee a significant number of people exiting SMSFs. However, for those for whom competency became an issue, one option could be appointing an external trustee and creating a small APRA (Australian Prudential Regulation Authority) fund or outsourcing more of the administrative duties. Those options would allow the fund to continue with the same investments, although it would incur some additional cost, he said.
