“You don’t get a GP to do a surgery, you get a surgeon,” Joseph Hoe believes.
Hoe is a financial planner, Money Management Women in Financial Services Mentor of the Year finalist, and, importantly, accredited SMSF Specialist Advisor (SSA) with the SMSF Association.
His words apply just as much to SMSF advisers as to surgeons.
SMSFs are a beast of their own when it comes to financial advice, and the Productivity Commission (PC) recognised this last month, suggesting that specialist training be required for planners advising on SMSF establishment in its final report into the superannuation industry.
While, to some planners working in the SMSF space, this may seem like salt in the wound of the Financial Adviser Standards and Ethics Authority’s (FASEA’s) push for more stringent education requirements, it’s not a new idea. Report 575 from the Australian Securities and Investments Commission (ASIC) last year already found that the quality of SMSF advice was not up to consumer expectations, suggesting that specialised education requirements could be needed, and the SMSF Association advocated for this to both the Productivity and Royal Commissions.
FASEA has also proposed that specialist SMSF training be considered a non-formal education component within its annual continuing professional development (CPD) requirements.
Client sentiment also suggests that more specialist training is needed. Investment Trends found last year that of the SMSF trustees with unmet advice needs, which represent nearly half of trustees, 27 per cent were dissuaded from obtaining advice because they lacked confidence in advisers’ expertise.
Although the PC did say that “the forthcoming higher educational and training standards that will be required for financial advisers should go some way towards improving the quality of advice provided”, it still proposed specialist training as one potential remedy.
Looking beyond establishment
According to SuperConcepts’ executive manager, SMSF technical and private wealth, Graeme Colley, a specialist accreditation in SMSFs needs to extend beyond just establishment to the technical aspects of running an SMSF, as these are what are most different to regular super funds.
The SMSF Association’s head of policy, Jordan George, backs this up.
“You need people who can advise over the whole lifecycle of the fund,” he says. “Establishment, accumulation phase, retirement phase, winding down … [an accreditation] needs to cover them all”.
This could cover the best interests duty, efficiency and cost efficiency, the time and knowledge needed to take on the role of trustee, exit strategies for older trustees, estate planning, gearing issues, and auditing and compliance obligations.
And then there’s the investments themselves. Unlike with Australian Prudential Regulation Authority (APRA) funds, there isn’t an investment committee going over asset allocations. As the buck really does often stop with the adviser in these cases, specialist training in investment strategies mightn’t go astray.
That’s not even mentioning tax, which can prove complex with concessional contribution limits, business concessions, and the transfer balance cap.
“SMSFs require a strong level of understanding of superannuation tax obligations on both an individual and fund level,” Colley says, whereas with APRA funds advisers usually only need the former.
It is hard however, to draw a line at what such an accreditation would cover; perhaps that is why the PC stopped at establishment.
“How long is a piece of string,” Hoe says, when asked what a compulsory accreditation could cover. “Perhaps it needs to be [focused], instead of covering one end of the rainbow to the other as that is endless”.
George also notes the PC’s concern about low balance accounts, which recommendations around the establishment of SMSFs reflect, while the PC itself identified the focus as at least partially because “this area is where many of the most egregious cases of poor advice have occurred”.
Going beyond the content of the course, regulators would also have to hash out what form a compulsory qualification in SMSF advice took should it be pursued.
Ideally, George believes that it would be a postgraduate tertiary qualification, like a graduate certificate or a masters with a focus on SMSFs. “However, I don’t think that’s necessarily realistic for every adviser wanting to give SMSF advice given the other FASEA requirements,” he says.
An alternative could be an industry accreditation model like what the SMSF Association already has in its SSA; although, of course, as a generation of advisers who already have degrees comes through, postgraduate qualifications will become less intimidating.
Then there’s the practicalities such courses could involve. A recent Money Management survey revealed that the current education provider of choice for advisers post-FASEA was Kaplan. The institution’s flexible, online learning model and low fees presumably were a factor in this, and could be worth considering for organisations looking to offer SMSF accreditations.
And should it be compulsory, regulators would be involved in working the above out: “If this [PC] recommendation did get up,” George says, “it would take FASEA and the Government and ASIC looking at it to what out what the standard should be and how to get there”.
Why should I care?
When you ask any planner what the biggest benefit of professional education is, the obvious answer is to the clients. And considering that SMSF owners represented around one-fifth of the financial advice industry’s revenue in 2016-17, it’s a potentially lucrative space for planners to specialise in.
Both Hoe and Bridget Lamphee, an adviser at Heard Financial and an SSA, have seen improvements in the advice they provide as a result from their specialist training.
“Although the process of becoming a specialist through the SMSF Association … has been quite arduous and tedious, it’s been worth it for my clients,” Hoe says.
When it comes to the ever-changing regulations around SMSFs for instance, the continuing professional development (CPD) requirements of the SMSF Association accreditation gives Hoe the confidence he’s across new requirements.
And as Colley observes, this then gives clients confidence that they’re doing the right thing.
Indeed, this is something Lamphee has noticed those without specialist training may lack: “Unfortunately, some practitioners can be unaware when it comes to staying abreast of any new legislation which can potentially arise to a contravention of the Tax or SIS Acts for trustees”.
Then there’s a benefit to clients’ bottom line too. According to Colley, as “a very general rule”, SMSFs with advisers working on them achieve returns one per cent higher than those without.
“I have implemented numerous strategies for clients over the years which have resulted in them being in a superior position today,” Lamphee says, giving credit to “many technical and training days specifically in the area of SMSF” for enabling her to do so.
“The benefit [of an accreditation] to me is simple, by applying various strategies, clients grow their wealth in the most advantageous manner.”
Specialist accreditations could also advantage advisers looking to gain an edge with consumers, especially when their qualifications are under a spotlight.
“Specialists for SMSFs will become more and more limited in supply as everyone is in waiting mode for the finalised piece of legislation from FASEA,” Hoe believes. As advisers deal with what FASEA wants with them, he doesn’t think specialist accreditations that aren’t, or at least aren’t yet, recognised by the Authority will be a priority.
George is much blunter about it: “It’s a branding tool too – it’s a way to differentiate yourself in a crowded market”.
Advisers seem to be picking up on the advantages of SMSF accreditations too. SuperConcepts saw a 20 to 30 per cent increase in interest in their September SMSF masterclass, while George says the SMSF Association has observed “an ongoing trend of understanding that specialist knowledge is needed here, especially as interest in SMSFs [from consumers] continues to substantially grow”.
As there’s more scrutiny from consumers of their advisers in the wake of the Royal Commission too, requiring specialist knowledge in complex areas such as SMSFs wouldn’t go astray.
Another unrealistic educational demand?
As with the benefits, planners tend to agree on the detriments of being required to study: Time and cost.
When running a business, any additional qualification is a time drain people don’t need. Add to this the pressure advisers will feel as they work to meet the FASEA requirements by 2024, and it’s hard to imagine a compulsory SMSF advice accreditation being welcome.
While the SMSF Association SSA accreditation obviously isn’t necessarily the same as what a compulsory one would be, the latter would surely have similar levels of CPD requirements. After all, the rules and recommendations around SMSFs are changing so much (even just on establishment, should the PC’s narrow focus be pursued) that continuing education is needed to add validity to the qualification.
And, Hoe warns, the SSA’s CPD requirements are “more strict and hard than general financial planning requirements”, and hence more time-consuming.
Of course, that doesn’t mean it’s not interesting: “I am passionate about SMSFs so I have never found the training piece arduous,” Lamphee says of her SSA training. “I have enjoyed increasing my skill set.”
In terms of the cost, Hoe saw no cost benefit for the first two years of practicing as an accredited specialist. He did after that however, noting that “when you become a surgeon you don’t expect to make a profit in the first year”.
The cost would also depend on the form a compulsory accreditation took. If it were through a university, for example, the money could be loaned from the Government. If, alternatively, it was through a private provider as some of the FASEA-approved courses are, would students have to stump the cost at the start?
One way of mitigating the impact of cost is to pass it onto the client; after all, they’re getting the benefit of the advisers’ improved knowledge.
The risk of this however, is that clients unwilling to pay that may just go it alone instead. As Colley observes, many SMSFs trustees are already “like bulls in a china shop, thinking they know exactly what should happen with their fund”.
To this end, SuperConcepts is looking into giving trustees themselves training in managing them.
A glance forward
To think we may not see a change in federal government this year is to bury your head in the sand, and if Labor gets in it’s likely that many of the PC’s recommendations will fall by the wayside as different superannuation priorities are pursued.
Does this mean the recommendation may be ignored?
Well, probably, but that doesn’t mean its contents won’t be legislated through other means. Colley says that even if the report isn’t taken up, there’s been so many people agitating for this reform specifically that it probably wouldn’t matter.
“ASIC, for example, made a lot of noise about this, particularly over the past year,” he says.
George backs this up: “I don’t see that as a risk going forward. I think both sides of Parliament have an interest in making sure recommendations for financial advice and superannuation are put into place.”
Colley suggests it could even be covered in licensing arrangements and that the ASIC Financial Advisers Register might be able to cover it already.
It’s also an area that could interest FASEA, who is the obvious choice to look at any compulsory accreditations going forward.
George believes that the Authority’s part in regulating it is a question of what the long-term role of FASEA is. To the frustration of many planners, long-term the next phase of its professionalisation regime could be standards for specialised areas of advice.