The SMSF conversations accountants should be having with their clients

September 11, 2018

Self managed super funds (SMSFs) are big business. At the latest count, around 600,000 Australians were managing super totalling almost $700 billion.

And the appeal is clear to see. SMSFs provide individuals with greater autonomy to utilise their super balance, and grow it, too.

The flip side, though, is a significant amount of responsibility and work to maximise the potential.

The term ‘self-managed’ is a bit of a misnomer, and SMSFs offer accountants an ideal opportunity to offer strategic guidance – and access to the right advice – to enhance their value proposition further.

For Alex Lucas, director of Distinct Accounting and Advisory in Avoca Beach on NSW’s Central Coast, SMSFs offer a considerable opportunity for accountants to add further value to their relationships with their clients.

“They’re called self managed super funds but, in reality, I think many people end up needing advice from financial professionals regardless.

“The amount of study and training you need to do to keep up-to-date with regulations and tax regulations and so on, it’s virtually impossible for someone who’s not a professional to be across all of the legislation – which you need to be if you’re going to maximise the potential of an SMSF.”

The risks of true self-management

A report from ASIC recently revealed that 55% of SMSFs had more than half of their super invested in one asset type, putting the achievement of retirement goals at serious risk.

“That in itself causes an issue when you commence a pension,” says Alex. “To satisfy the minimum pension requirements you’re obligated to pay the ATO determined age-specific minimum percentage factor amounts or risk the pension ceasing.

“Take the following scenario. You’ve heavily weighted into one asset, maybe a property, but to satisfy your minimum pension requirements, you could need to sell the property. And when it comes to accessing that money, the property market might not be in a good position to sell the property.”

Implications of new SMSF tax threshold

The new $1.6 million tax-free thresholds for SMSFs has also provided a challenge – and an opportunity for conversation – for accountants working with SMSF trustees.

Alex says that it provides a further opportunity to demonstrate your value.

“There are a few issues to deal with in that,” he says.

“Firstly, people have to remember that while you’ll be paying tax at 15% on the earning generated from on anything over the $1.6m, it is still significantly better than 47%, which is what many clients can be getting taxed.

“Secondly, as an accountant, I will try to implement strategies to minimise the amount that’s getting taxed.

“For example, if a client withdraws more than their minimum pension requirement for the year, you may be able to take the minimum pension from the pension account and the balance from the accumulation account.

“So, say the client withdrew $100,000 for the year, and in order to satisfy the minimum only need to withdraw $64,000, then the balance could be taken from their accumulation account as a lump sum payment.”

The need for strategic alignment

The ASIC regulatory guidelines have put increasing pressure on accountants to change the way they operate. ASIC’s introduction of RG146 has put strict boundaries in place for those who can and cannot provide advice, and Alex says this has given many smaller accounting companies a decision to make.

“You’ve either got to become RG146 compliant to provide advice, or form relationships with financial advisers in your area who can,” he says.

“Clients want convenience, they don’t want to be going to one place for their tax compliance and another place for advice, so having these strategic partnerships helps you build that total value proposition, and helps client retention.”

More About Alex

Alex began his career working for a small accounting practice before moving to a BRW top 100 accounting firm on the Central Coast. It was here where Alex honed his skills over the next 12 years, working as client manager providing a variety of services to a wide range of clients and entities. It is these set of skills that Alex wishes to use to help grow, develop and sustain his client’s businesses and wealth. Alex prides himself on getting to know his clients and understanding their business.

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