What SMSF Advice You Can Get From Accountants And Financial Advisors?

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    Being an SMSF trustee can be difficult. However, even though many SMSF trustees ask their accountant for help, they can only offer guidance on a limited number of SMSF-related issues.

    You must make sure you are receiving assistance from someone who is qualified and licenced to do so if you want to maintain your fund compliant. What issues, though, can your accountant help with?

    Klear Picture has created a checklist to assist SMSF trustees in navigating this complex subject. Use it to determine whether your accountant is the best person to turn to for assistance.

    Before defining who is capable of what, it is important to comprehend the history.

    Under the so-called accountants' exception found in Regulation 7.1.29A of the Corporations Regulations 2001, accountants could offer a variety of services to SMSFs until June 30, 2016. Due to this exemption, accountants could offer guidance on the creation and dissolution of SMSFs without having an Australian Financial Services Licence (AFSL).

    The government revoked this exemption as part of the financial advice reforms (FoFA) that were put in place in 2016 and subjected accountants to the stringent regulations governing financial advising.

    Would you like to speak to a specialist? Book a complimentary discovery session by calling: (03)999 81940 or emailing team@klearpicture.com.au.

    Despite a rise in the number of funds with unmet advisory needs, Investment Trends reports that the number of SMSFs obtaining financial advice has experienced its largest-ever yearly decline.

    The number of SMSFs obtaining financial advice decreased from 225,000 to 195,000 in the previous year, marking the largest decline since the research company started compiling data.

    It's not that trustees don't believe they need financial guidance; an all-time high 335,000 SMSFs, up from 315,000 in 2019, claim they need.

    Michael Blomfield, CEO of Investment Trends, described the situation as "difficult." He said that it might be because the trustees aren't getting the guidance they need.

    It seems that the counsel being given to them is falling short, according to Blomfield, despite the fact that the number of people seeking help keeps rising.

    The CEO stated trustees are mostly seeking assistance with an investment plan review during the pandemic, followed by pension strategies and investing for a monthly income. The data was presented from the 2020 Vanguard/Investment Trends SMSF Report.

    Blomfield suggested that although trustees might be receiving guidance in these areas, there is a problem with the messaging.

    To fully develop their value proposition to SMSF retirees, planners still need to do some work, he said.

    According to the 2020 Vanguard/Investment Trends SMSF investor report, 32% of Australia's 600,000 SMSFs look for a financial adviser's help. However, more than 50% of SMSF trustees claim that they have unmet advising needs in relation to their SMSF.

    Australians often adore owning real estate. The directly held property makes up approximately 19% of all Self Managed Super Fund (SMSF) assets, indicating that many trustees consider it an essential and significant part of a diversified portfolio. Property can be included in investments made by an SMSF in a variety of ways, all of which should be carefully evaluated.

    Who Can Provide Tax Advice To An SMSF?

    If all of this seems quite complex, you might assume that the simplest course of action is to seek out a financial advisor for all of your SMSF's financial and tax guidance needs. However, this is not necessarily the case.

    Since 1 January 2016, financial advisors must be registered with the Tax Practitioners Board (TPB) as a tax (financial) adviser before they may provide advice on how the taxation laws (income tax, superannuation, and SMSF laws) apply to a client's specific circumstances. In addition to continuing to be a licenced financial adviser, they must meet the TPB's ongoing education and experience criteria.

    Many financial advisors lack the necessary tax (financial) adviser registration, making it impossible for them to offer guidance on the tax ramifications of the goods and methods they suggest. Instead, they will direct you to a tax advisor or accountant who is licenced to give tax advice.

    What Are The Advice Rules For Accountants?

    Simply said, accounting services can offer a variety of advice and services to the trustees of an SMSF, but they must have an Australian Financial Services Licence if the financial advice and services contain personal counsel (AFSL).

    Financial advisers are required to obtain this licence in order to give clients personalised advice on financial goods and services.

    Let's say your accountant lacks an AFSL. In that situation, they can still offer realistic information about investments and strategies while helping you with essential SMSF administrative responsibilities (like the paperwork for fund establishment and rollovers).

    Your accountant must possess an AFSL if you want information and advice about whether a particular investment product or strategy is appropriate for the SMSF.

    When Do You Need To Use A Licensed Accountant? 

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    Only accountants with an AFSL are permitted to offer specific counsel, such as:

    SMSF establishment

    • Advice on how to start or end an SMSF and whether it would be appropriate in your particular situation
    • Describe which super investment choices and funds are appropriate.
    • Suggest pooling or rolling over assets into a single fund or recommending one superstructure over another

    Contributions

    • Encourage more super contributions
      Introduce the idea of creating a salary sacrifice agreement.

    Pensions and withdrawals

    • Start a super pension or transition-to-retirement pension, if appropriate (TRIP)
      Calculate the necessary super pension amounts based on your account balance, life expectancy, and estate plans to meet your income needs.
      Plan a one-time lump amount withdrawal.
      Encourage rollovers from an SMSF

    Investment assets

    • Suggest acquiring real estate using your SMSF
    • Make a specific investing plan for the SMSF.
    • Suggest purchasing specified assets, such as fundamental deposit products and cash management accounts, while creating an SMSF.
    • Encourage the creation of a Limited Recourse Borrowing Agreement (LRBA)

    Estate management

    • Set up a legal death benefit nomination.
    • Provide suitable nominees for a legally binding death benefit nomination. (For more information on death benefit nominations, see Who gets your super when you pass away on SuperGuide. How to nominate someone for death benefits.)

    A Flush Market

    The 15th annual edition of the research, which surveyed more than 3000 SMSF trustees and over 200 advisers, found that the number of SMSFs is still increasing, albeit at a continuously slower rate.

    The growth rate of SMSFs rapidly decreased after reaching a peak of 8.7% (42,033 new funds) in 2012 and was 3.3% (20,028 new funds) in the year to September 2019.

    Most people who desire SMSFs already have them, so a lot of this can be attributed to a rather saturated market. However, Blomfield claimed Labor's ultimately unsuccessful attempt to limit franking credit refunds as part of its election campaign may have precipitated a wave of regulatory worry.

    Regulatory uncertainty, according to SMSF trustees, is what causes them to question if SMSFs are the best place for them to be, he said.

    An Apra-regulated Back-up Plan

    According to the survey, an increasing number of SMSF trustees choose to keep an APRA-regulated superannuation fund as a backup, with nearly half of those who are thinking about creating an SMSF stating they'll keep their current fund as well.

    Up from 44% the year before and 34% in 2018, 48% of respondents this year stated they would keep their current fund. Only 32% of newly appointed trustees in 2015 prefered to continue managing their old fund.

    Blomfield claims that "a number of things" are responsible for this development.

    He cited people's propensity to share their interests as the reason why personal insurance policies come in at number one. "The second driver is a fairly sensible one, and that is the fact that their company is making contributions to that account."

    He said that the desire to keep the group insurance in their APRA-regulated fund was another motivator, but it ranked "lower down the list."

    Blomfield noted that trustees are abstaining from taking exclusive responsibility for maintaining their own wealth into their own hands, saying that this retains diversification from the outset as a positive.

    No interest in fixed income

    Regarding investments, the survey showed that trustees have a startling lack of interest in fixed income as a defensive asset and worrisome ignorance of the asset class as a whole.

    According to Blomfield, trustees claim to have a great interest in secure income streams but limited interest in fixed interest assets. He explained that this disagreement is a result of a predisposition to chase yields combined with a lack of comprehension.

    Blomfield observed, "When we questioned where they receive their exposure from... they answered 'equity fixed income,' [which is] not fixed income.

    According to him, people are attempting to achieve returns similar to fixed income by using the equity market.

    Blomfield stated, "That as a strategy needs to be separated from what we call true or pure fixed income, and the lack of penetration of fixed income in SMSFs is a "issue."

    This reinforces the idea that trustees of SMSFs are employing financial advisers at a slower rate, he added. "[Trustees] are not receiving an explanation of and understanding of the rationale behind using various asset types for various purposes."

    Advice You Can Get From Accountants and Financial Advisor 

    First, an investment strategy!

    Before you make any decisions on investments, as a trustee of an SMSF, you are required by law to first assess your investment strategy. The framework of your plan has to include information on the desired level of exposure to the real estate market, the sort of exposure, and the degree to which it is appropriate given your existing circumstances. It is essential to have a portfolio that is sufficiently diversified in order to secure an income for retirement, distribute investment risk, and prevent a single asset class, such as real estate, from dominating the risk and returns of your SMSF.

    Investing done directly

    A direct investment into a piece of real estate is a common way to gain exposure to the real estate market. This could take the form of either a residential or commercial property. Before using the money from an SMSF to buy a home, one needs to give careful consideration to a number of important aspects, including the following:

    • Your diversification and asset allocation.
    • Possible rental earnings and property costs.
    • Your retirement age and the requirement for liquid assets to pay pensions.
    • You or your connected parties may not use the property unless it is a real business property (BRP):
    • You might be permitted to work from the locations that are owned by your SMSF if the property is BRP.
    • Additionally, you might be able to take advantage of the contribution and CGT advantages for small businesses.

    Limited Recourse Borrowing Arrangements (LRBA)

    Through the use of indirect investments, self-managed super funds (SMSFs) have the option to increase their exposure to the real estate market. This can include property funds and syndicates that are exchange-traded as well as those that are not listed, as well as listed investment vehicles such as listed investment businesses. Listed investment vehicles can also include investment firms. Another common way for self-managed superannuation funds, sometimes known as SMSFs, to gain exposure to the real estate market is through the use of managed investment trusts. Because of the complication involved and the possibility that it would take more cash than an indirect investment, investing directly in real estate might not be the best choice for your self-managed super fund (SMSF). This is because of the acronym. In addition to this, it gives your SMSFs the ability to access high-value properties like office buildings, shopping malls, and industrial sites, which they would not have been allowed to access under any other circumstances. This is a significant benefit.

    • Is it possible for your SMSF to make loan repayments over a longer period of time, taking into consideration the returns on assets, the interest rates, the liquidity, and the contribution caps? Analysing the structures and expenses of setup.
    • Is it possible for your SMSF to make loan repayments over a longer period of time, taking into consideration the returns on assets, the interest rates, the liquidity, and the contribution caps?
    • Borrowed money can under no circumstances be used to alter the characteristics of the property or make enhancements to the asset.
    • Do you satisfy the onerous requirements necessary to obtain bank financing?
    • A loan-to-value ratio of no more than 70% and a minimum of $200,000 in nett assets is typically required of a Self-Managed Superannuation Fund (SMSF) by the majority of lenders.

    Investing that is not direct

    Through the use of indirect investments, self-managed super funds (SMSFs) have the option to increase their exposure to the real estate market. This can include property funds and syndicates that are exchange-traded as well as those that are not listed, as well as listed investment vehicles such as listed investment businesses. Listed investment vehicles can also include investment firms. Another common way for self-managed superannuation funds, sometimes known as SMSFs, to gain exposure to the real estate market is through the use of managed investment trusts. Because of the complication involved and the possibility that it would take more cash than an indirect investment, investing directly in real estate might not be the best choice for your self-managed super fund (SMSF). This is because of the acronym. In addition to this, it gives your SMSFs the ability to access high-value properties like office buildings, shopping malls, and industrial sites, which they would not have been allowed to access under any other circumstances. This is a significant benefit.

    Benefits Of Seeking Financial Advice

    Investment Strategy Development and Implementation

    In Investing Trends' 2020 survey, more than 75,000 trustees of SMSFs responded that they needed to examine their SMSF investment plan.

    ATO data backs this up. The typical SMSF is overweight Australian shares, has more than 25% of its capital in cash, and has little exposure to the important asset classes of bonds, overseas equities, and global REITs. As a result, the portfolio is ineffective and undiversified.

    An adviser can contribute some of their formal education and training to help create an investment plan that:

    • considers your preferences before assisting you in creating a solid, rule-based investment strategy to aid in the careful management of your portfolio.
    • identifies the asset allocation that, in terms of risk/return, is just right for you.
    • integrates your SMSF investment strategy into a more comprehensive, all-encompassing plan that takes your wealth into account (not just the super).

    Professional, knowledgeable advisers with experience will take into account portfolio construction from both a "top-down" and "bottom-up" perspective. They can assist you in developing a sound investment strategy that can serve as a "safe harbour" and keep you from making a number of typical financial mistakes using their in-depth knowledge of Modern Portfolio Theory (MPT).

    Integrating Your SMSF With Your Broader Strategic Plan

    Let's say you require help with more than just your SMSF's investment plan. In that instance, a financial advisor can assist you in analysing your overall financial status to make sure it is sufficient for achieving your future goals. This might entail looking into the following:

    • Your overall financial status and how your SMSF fits into it
    • What will you require in retirement?
    • What proportion of this must be paid for by your SMSF
    • Whether you can transfer more of your money into your SMSF's low-tax environment
    • What level of investment risk you can afford to take and what level of risk is necessary for you to take in order to reach your retirement goals
    • What your final wishes are and how they relate to your SMSF

    Human Influence

    Having a long-term connection with a financial advisor who is familiar with your requirements and objectives can be beneficial in a number of different ways. An independent financial advisor can act as a sounding board for significant decisions and keep you accountable for your actions.

    Imagine, too, that they were instrumental in the development of the investment strategy for your SMSF. When this occurs, they are in a good position to make sure that you stay to it amid the ups and downs of the economic cycle, which is a time when many of us are more likely to make standard behavioural blunders. For example, during times when the market is falling and then recovering.

    Time-Saving

    By working with a financial advisor, you may make an investment in yourself by freeing up time for yourself and allocating dollars to ensure that your portfolio is constantly rebalanced, observed, and that its performance is tracked in the appropriate manner. This is an example of an investment.

    In order to free up more of your time to focus on things that are more important to you as your life progresses and your priorities shift, you may decide that it is more beneficial to delegate the time-consuming task of maintaining your portfolio to a third party. After all, one cannot put a price on time.

    Peace of Mind

    In addition to that, the perfect financial counsellor should be able to give you confidence in your decisions. This does not indicate that you are giving up control of the management of your SMSF.

    Engaging the services of a financial advisor, on the other hand, should make the management of what is potentially your largest sum of money less burdensome. It can be very encouraging to know that your finances are being managed by someone who has both knowledge and experience in the field.

    Things to consider before getting advice 

    The Cost of Advice

    When you ask a professional for unbiased counsel, you should be prepared to pay for their knowledge and experience. The vast majority of advisors will impose a set fee for creating and executing your advising strategy. Additionally, they might charge a flat or proportional fee for managing your SMSF portfolio.

    The time it takes to plan, implement, and maintain the client's financial affairs is often correlated with the expenses of providing compliance financial advice, and these costs will be determined by the amount of assets and economic complexity a financial adviser is responsible for.

    As part of your initial engagement, an adviser will give you a thorough breakdown of the costs related to getting guidance.

    The Adviser's Business Model

    In the past, commissions for the selling of financial products were commonplace in financial advice. These tactics have been all but eradicated thanks to recent amendments to the Corporations Law. However, it is always important to be aware of whether or not an adviser's business plan calls for you to invest in managed funds that the advisory firm controls. This will assist you in comprehending the actual cost of assistance as well as the prospective business structure for the advice industry.

    Would you like to speak to a specialist? Book a complimentary discovery session by calling: (03)999 81940 or emailing team@klearpicture.com.au.

    Relinquishing Responsibility

    The option to choose when, how, and with whom to make investments is one of the primary advantages of creating and managing an SMSF. You will probably give up some of this power if you hire a financial advisor to handle your account. This needs careful evaluation and may or may not be appropriate for you.

    This is by no means a comprehensive list. It is advisable to consider what services you want first if you are thinking about asking for advice. This will enable you to interview potential advisers effectively before hiring them, which should result in a relationship that benefits both parties.

    There's no minimum balance required to set up an SMSF, but it usually becomes cost-effective once you have a balance of $250,000 or more. You will need to pay the annual supervisory levy to the ATO and arrange for an accountant to prepare the financial statements and tax return, and conduct an independent audit.
     
    The main disadvantages of an SMSF over a retail superannuation fund are:
    • Costs associated with SMSFs. Subject to a case specific analysis, an SMSF may be more expensive than retail funds if the fund holds minimal assets. ...
    • Legal and compliance obligations. ...
    • Expertise and performance.
    Five steps to setting up a self managed super fund (SMSF)
    1. Establish a Trust. The first step involved with setting up an SMSF and registering an SMSF with the ATO is establishing a trust. ...
    2. Obtain the trust deed. ...
    3. Sign a declaration. ...
    4. Lodge an election with the regulator. ...
    5. Open a cash account.
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