If you have an SMSF client:

• Presently receiving a pension from their fund
• Who is approaching the point where they will start taking a pension
• Is receiving a pension, but may make non-concessional contributions in future
• Has transfer balance cap issues (or the survivor may have such issues if one was to die),

then you need to read this, and seriously consider upgrading their deed.

When it comes to SMSF deed providers, nothing beats experience.  At Pro-Super, we wrote one of the first SIS Act trust deeds back in 1993 and 25 years later we still have one of the best-selling, most widely used deeds of all time.

Pro-Super is not a company to promote unnecessary deed updates.  Unlike many other providers, our deed has always contained an effective “catch-all” clause, designed to allow trustees to act in accordance with any future changes to the law.  Occasionally, however, we introduce certain innovations that go beyond the minimum requirements of the legislation.  Even more occasionally, those innovations are so valuable to both SMSF trustees and their advisors that the small price of upgrading a client’s deed is well worth it. 

We believe that this is one of those times.

So, What’s the Problem?

When the Government removed the so-called “accountant’s exemption” in July 2016, a number of very standard strategies which were so obviously in a client’s best interests that it would be negligent not to implement them, were suddenly subject to the Statement of Advice requirement. 

Here are some of the areas which were previously subject to the “Accountant’s Exemption”, but are now subject to the general and personal financial advice rules:

• Establishing an SMSF and rolling money into it.
• Making a contribution to a superannuation fund.
• Starting or stopping a pension.
• Choosing between how a benefit is to be paid (eg. pension or lump sum).
• Commuting one or more pension benefits to meet the transfer balance cap requirements (and, where there is more than one pension, which pensions to commute).
• Commuting benefits upon the death of one member to meet TBC issues for the survivor.

If you advise a client to do any of these things without an AFSL after June 2016, you may find that a “friendly” visit from ASIC at some point in the future exposes you to potentially nasty consequences.

However, it gets worse!  Let us say that you spend the time, effort and money to become licensed to give SMSF advice under the new rules.  When your client retires and wants to start a pension, suddenly you need to convince them that the paperwork for which you previously charged two or three hundred dollars now needs to be accompanied by a $2,000+ statement of advice.  Try that a few times (as we have) and see how well it goes down!

The dilemma is made worse by the fact that under usual professional duty of care standards towards your clients, it would arguably be considered negligent not to advise them to implement certain strategies.  For example, your client retires (or reaches age 65 years).  If you advise that they commence a pension, the fund’s income and capital gains are no longer subject to 15% and 10% tax (respectively), but are completely tax-free, as are the pension payments after age 60.  So why wouldn’t they start a pension?   It’s a no-brainer!  And where is the benefit in requiring a 50 page statement of advice for that? 

What is the Pro-Super Solution?

Pro-Super – with a quarter of a century of experience in superannuation law – has created a solution to these problems which other providers are yet to match.

As part of that expertise, we recognise there are certain times when it is almost always in the client’s interests to make one choice over another.  So why not have the preferred course of action “hard-wired” into a trust deed (with the member being given an “opt-out” avenue, should they decide to do something different)?

That is exactly what our deed now does.  Our latest deed includes provisions that:

• Requires the trustee to commence a pension using all of the available unrestricted balance, upon the member meeting a condition of release (ie. retirement or reaching age 65), unless they elect otherwise, or choose an alternative start date.
• Upon receipt of a non-concessional contribution for a member already in receipt of a pension, requires the trustee to commence a new pension on the same terms as their existing pension, unless the member elects otherwise.
• Requires the trustee to treat any payments in a year which are over a client’s minimum pension payment as a partial commutation, unless the member elects differently.
• Where a client has transfer balance cap issues (either because of their own contributions, or because they have inherited a superannuation balance from their deceased spouse), gives the trustee clear mandatory instructions as to which amounts should be fully and partially commuted, taking into account what would almost always be the best choice to take, again with member discretion to elect an alternative. [For a more detailed discussion of the TBC provisions, see here.]

Why are these changes so important out in the real world? Because an adviser who informs their client of these deed provisions is not providing financial advice.  They are merely informing the client of the requirements under the trust deed and asking the client whether they would like the advisor’s help in meeting their existing legal, compulsory obligations as a trustee of that fund.  Any assistance which the advisor provides in preparing these documents becomes an administrative or accounting function, not an advice function.

Unless you have a deed containing these provisions (and Pro-Super is presently the only provider offering this), then legally you must provide your client with an SOA to recommend that they pursue these strategies.

Why You Should Always Use Pro-Super

We fully expect that these innovations, along with others we have recently introduced, will be mimicked by our competition eventually.  However, they simply do not have the experience and expertise which more than two decades of service to the professional community can provide. 

At Pro-Super, we have never had a client with a negative outcome from a deed which we have produced – not court proceedings, not PI insurance claims, nothing!  [Touch wood!]  And that with over 30,000 deeds sold in more than twenty-four years.  That speaks volumes for the quality of our product, and the assurance you receive from using the best in the business. 

Who says you can’t buy peace of mind?

Additionally, all clients of Pro-Super have access to our dedicated technical staff for FREE phone advice at any time.  Most of our clients say that this “value-add” is decisive in choosing us over anyone else.

To discuss this with us further (including our volume discounts), call us on FREECALL 1800 641 146, or order online now right here.

Endnotes

There are, of course, one or two things which we can’t fix.  Obviously, the decision to set up an SMSF in the first place is always going to be a dilemma for unlicensed accountants.  There is also the question of making contributions to a super fund (where the situation becomes more nuanced).  A person (licensed or unlicensed) can still give factual advice to a client (without giving them recommendations).  A registered tax agent can also give their clients advice on the tax consequences of certain actions.   If you would like to discuss how you can legally have these conversations with your clients, just call us today.

ASIC has recently published an updated guide on what is, and what is not exempt from the SMSF advice requirements here, which includes a discussion as to what unlicensed accountants can do in relation to assisting with fund establishment.  As to what tax agents can do without a licence, see here.

For further information on why your clients should only ever draw the minimum pension payments and treat any payment above that as partial commutations, see our SuperTalk article here.