August 7

Increasingly, we can’t trust journalists to decipher finance

The following article is republished from The Conversation

Sophie Knowles, University of the Arts London
Gail Phillips, Murdoch University
Johan Lidberg, Monash University

In the fallout of the 2008 global financial crisis, the financial media were criticised for failing to fulfil a watchdog role, for boosting the global asset boom that contributed to the crisis, and for exacerbating the crisis when it happened.

Among the strongest accusations was that financial journalists had been captured by the small coterie of elite sources they used for information, and by a newsroom culture that favoured free markets and encouraged a pro-business attitude.

The corollary of this was that perceived doomsayers and others providing alternative viewpoints and warnings were left out of the debate. While people have called out these trends, there has been little hard evidence measuring the extent of the problem.

February 19

A new solution for retirees’ income needs?

There has been much discussion in the media about including the family home in the pension assets test. Regardless of the merits or otherwise of this proposal, it raises a fundamental question- what do the newly pension-deprived retirees live on? Mostly, the answer seems to involve either the sale of the family home- “downsizing”; or some form of reverse mortgage. Both of these options have problems. Many older people simply do not want to move, and reverse mortgages necessarily involve a compounding interest problem.

The Super Group has proposed an alternative approach: allow retirees to “contribute” their family home to super. In effect, this would mean “swapping” the home for an equivalent dollar value balance in an APRA regulated superannuation fund, coupled with a right of life tenancy, if they require it. The earnings on their new diversified superannuation balance would fund a fixed rental payment and provide additional income, which could be supplemented by a drawing on the capital component, if required, down to an actuarially determined minimum balance. On death, the residual balance would be paid to dependents as per any super balance.

In other words, instead of gaining a pool of money on which interest is payable, they gain a pool of money on which interest is earned.

December 12

TSG’s Approach to SMSF Audits

For a number of years, many in the SMSF sector have seen the annual audit requirement for SMSFs as an unnecessary regulatory burden, treating it as a “rubber stamp”. All too often funds were “audited” by an associate of the person or entity who prepared the fund accounts and tax return, or worse, by the same person. This cavalier attitude has led to some disastrous outcomes. Unsurprisingly, the ATO has responded to this industry practice by a renewed emphasis on SMSF auditor competence and independence. Like so much regulation in the financial services industry, it has been tightened up in response to an apparent unwillingness by the industry to comply with both the letter and the spirit of the rules.
From TSG’s perspective, we have always taken the view that, given the audit is a mandated regulatory requirement, we should strive to optimise its value for our clients. This means:
– Leveraging it to provide an additional level of peace of mind for fund trustees and members, and
– Driving technology and process automation to ensure that the audit is able to be provided as efficiently as possible.
We have been fortunate to work with our audit provider, Deloitte, to deliver against both of these objectives. Clients gain the comfort that a truly independent audit by a top tier firm provides, while benefitting from process and scale efficiencies to keep costs down.
We see increasing scope for the type of automation we are employing with Deloitte to drive efficiency and lower across the industry more generally. Technology and innovation has the potential to simultaneously increase protection for consumers, increase competition and drive down costs. Unfortunately opportunities are all too often dashed by the poisonous combination of industry culture and the reflexive self-interest of the major players and their lobbyists.
In this regard it is interesting that the recent report of the Murray inquiry emphasised the need for greater innovation in the industry. Technology and innovation have a tendency to lower barriers to entry and to unleash “disruptive forces” to attack industry incumbents. Incumbents in turn look for ways to slow down or control innovation. The more concentrated the market, the more incumbents are able to find ways to control the innovation process. It is therefore unsurprising that the Murray inquiry determined that the Australian superannuation was both relatively high cost industry in need of greater innovation.

September 30

Why should all SMSFs have a Corporate Trustee?


The Super Group has always strongly recommended that SMSFs adopt a Corporate Trustee structure, and I have always been somewhat surprised that an overwhelming majority (75%) of SMSFs do not use this structure. I expected that as the industry matured the use of Corporate Trustees would increase, given the clear cut advantages. So I am really perplexed with recent ATO statistics showing that approximately 91% of newly registered SMSF’s in 2012 had individual trustees.

This is a poor reflection on the level of SMSF knowledge and experience among the accountants and advisers facilitating the establishment of these funds.

The underlying reason seems to be that SMSF establishment and administration by and large remains a highly disaggregated sector. This is starkly illustrated by the statistics for fund lodgements. In 2012, of the 13,029 Tax Agents who completed and lodged SMSF returns, 66% completed fewer than 20, and 94% completed fewer than 100.

Any experienced SMSF adviser should recommend a corporate trustee structure – without exception.