Speaking at the Chartered Accountants Australia and New Zealand conference last week, Investment Trends research analyst Recep III Peker said accountants were finding a significant number of contraventions within the SMSFs of new clients.
“We asked accountants of the new SMSF clients [taken on by them] in the past 12 months how many were compliant in relation to regulations and requirements, and the average accountant said only 68 per cent were compliant,” Mr Peker said.
“This means a third of the SMSFs without any accounting relationships are non-compliant – that’s a huge statistic.”
Mr Peker said the main potential contraventions related to administration, failure to document the investment policy, report keeping and in-house assets.
The research also demonstrates the importance of referrals, with word of mouth playing a significantly greater role in the decision to set up an SMSF than recommendations from accountants.
Mr Peker said that in the 1990s, around 60 per cent said they set up an SMSF because their accountant told them to do so.
“Nowadays, that’s no longer [the case]; only about 16 per cent of those who set up an SMSF between 2012 and 2014 said they had [done so] because their accountant had told them to do so,” he said.
Twenty-four per cent of those who intend to set up an SMSF in the future said they want to do so because a friend recommended it, Mr Peker said.
“It’s really important for you to encourage your existing clients to get their friends to go to you when they decide they want to set up an SMSF,” he added.
“The top [financial services] areas people are willing to pay for are all around retirement: if you look at the biggest cluster it tends to be around the age pension and estate planning and succession planning. It’s a huge area of unmet advice, it’s a huge opportunity,” Mr Peker said.
How active then are the authorities in assessing and pursuing the
non-compliance issue of so many funds ?
If the average Accountant says that only 68% of their new SMSF clients funds were compliant, then why is it the Accountant who is picking up non compliant issues and not the ATO?
In March 2014 there were 528,701 SMSF’s in Australia and growing by 34,500 per annum.
Does that mean potentially there may be approx 10,000 new funds set up a year without Accounting advice that may be non-compliant?….possibly not, but there may still be a huge number of funds that are set up for all the wrong reasons and may never be picked up by the ATO regarding non-compliance.
The best advice of course is always recommended by a friend around a BBQ after several beers!
I think the problem is much worse than this interpretation suggests. These figures only relate to people who have chosen to go and see an accountant. What about all the SMSF trustees who never bother to see an accountant? Or never bother to have their fund audited?
Why do people set up an SMSF on the advice of their friends? Many people do it because their friends told them it was a great way to fund their small business, or buy a property for their kids, or pay for a jetski, or a holiday to Bali.
A more illuminating statistic would be how many SMSFs have failed to obtain a compliant audit since setting up.