ATO flags ‘concerning findings’ in SMSF research

The ATO recently commissioned an independent SMSF research study involving online surveys, mystery shops with SMSF professionals, in-depth qualitative interviews with trustees and professionals, and group discussions. 

ATO SMSF regulatory branch assistant commissioner Justin Micale said the research showed that there are distinct clusters of SMSF trustees that reflect a wide variation in trustee knowledge, confidence and engagement.

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“Clusters vary from one extreme to the other. There are those that are very confident and financially savvy, have an interest in investing and finance and attend seminars and webinars,” said Mr Micale, speaking at a recent Tax Institute event.

“Then, at the other extreme, we have unprepared trustees, who lack the financial confidence and capability to manage their SMSF. They intend to be impulsive and ad hoc in their decision making, price-sensitive and reluctant to invest in financial advice.”

Mr Micale said this group of unprepared trustees, which comprised 13 per cent of the respondents, are also more likely to rely on informal information sources such as social media and friends.

“Interestingly, one-third of those in the unprepared group, advised us that they regretted their decision to start their SMSF,” he noted.

Another cluster, referred to as trusting delegators, do seek professional advice but they put their complete trust in someone else, said Mr Micale.

“[This is] sometimes to their detriment. These trustees approach the running of their SMSF without doing any research of their own, leaving themselves vulnerable and open to being a victim of a scam,” he warned.

The research found that over a third of trustees in the system lack the financial confidence and capability to manage their SMSF and put their complete trust in their adviser, he said.

“For those who do not have the benefit of sound advice, this often results in non-compliance and puts their retirement savings at risk. For professionals, this can mean they have a more challenging client to support. It is clearly in the best interests of the ATO and SMSF professionals to address this issue,” said Mr Micale.

Another finding of concern, said Mr Micale, is that the majority of trustees leave their compliance responsibilities entirely up to their SMSF professionals.

“While a trustee can appoint a professional to help them, the final responsibility and accountability lies with the trustee,” he said.

However, he noted that the positive influence of SMSF professionals on compliance behaviour of trustees does result in a far better experience and outcome for the client.

“What the research really highlighted was the important and significant role that professionals play in helping trustees effectively run their SMSF and meet their regulatory obligations,” he said.

“While the ATO is certainly seen as a trusted source of information, trustees advised that they’re more likely to turn to their accountant or SMSF professional for advice and information.”

Mr Micale said it was very important that prospective trustees enter the system with their eyes wide open and with a good understanding of their responsibilities and obligations before signing up to an SMSF.

“Another interesting revelation from the research is that trustees develop habits in the first six months of operating their fund, so there’s a real critical window for early engagement with trustees during this period,” he said.

He also reminded SMSF professionals about the publication recently released by the ATO to help prospective and new trustees, called Starting an SMSF.

“This is the first in a series of guides [we] will be releasing to help trustees in the life cycle of their SMSF. We also have a range of other useful products on our website such as videos, checklists and webinars,” he said.