DIY diploma – a schoolyard brawl

Many a financial planner would have spat out their coffee last June when news of the biggest potential shake-up of financial planning education landed on their desk. A small industry association had dared to make the suggestion that all advisers and accountants offering advice on increasingly popular self-managed super funds (SMSFs) be forced to get SMSF specific qualifications.

The notion was formed by the 600-strong members of the SMSF Professionals’ Association of Australia (SPAA), which didn’t just bring the issue up in a board meeting or post it on their website, but managed to present the proposal in private, in Canberra, to Assistant Treasurer Mal Brough.

Brough’s reaction was vague. He liked the idea, but had no intention of introducing mandatory accreditation unless ongoing Australian Securities and Investments Commission (ASIC) surveillance turned up systemic problems.

Nevertheless, news of the meeting generated a raft of passionate responses from an industry that has barely gotten over the extra compliance and educational requirements brought on by the introduction of the Financial Services Reform Act (FSRA) in March 2004.

Industry opposition

One disgruntled self-managed super professional, Peter Perkins, recently wrote to Money Management arguing: “Is it not better to take the big stick to those that transgress rather than over complicate everyone’s life by imposing more compulsory rules that are of questionable value? . . . Further legislation will do nothing to improve quality, just impose further hidden costs that have to be passed on to the trustees with no benefit.”

Just who is supposed to foot the bill for compulsory SMSF accreditation is triggering alarm bells. Another cause of concern is the fact that SPAA offers its own course — for around $1,000 — and in doing so, has a potential conflict of interest in making the recommendations.

Someone who has little to gain financially out of SPAA’s suggestions is Dixon Advisory and Superannuation Services director Alan Dixon, who runs a small advisory business specialising in SMSFs. He said he “100 per cent supported” the principal of the idea, so long as “it doesn’t just become an empire building exercise for SPAA”.

“We already pay to be chartered accountants, already pay to be CPAs. As a small business, I don’t think we should have to pay another $1,000 per staff member to have all the necessary credentials.”

Perkins, from Supa-funds Management, is also sceptical of SPAA’s true intentions, claiming the proposal “smacks of a self-seeking plan” to generate training program income from SPAA’s members.

Enforcing standards

But one of the SPAA members who put the proposal to Assistant Treasurer Brough — David Ruddiman — baulks at the suggestion that he did so for no other reason than to boost enrolments in his association’s own SMSF courses. Ruddiman says he would like to a see a host of SMSF specific courses that are already included on the ASIC training register become compulsory. He is also encouraging industry associations like the Financial Planning Association [FPA] to start enforcing higher standards rather than “just offering two hour programs or professional development days”.

He adds: “All the professional bodies have endorsed a standard for advising on SMSFs, yet nobody except SPAA is in fact enforcing a standard. It’s all well and good that we’ve got the industry saying we should self-regulate, but nobody’s really pushing the envelope to make sure people comply with the law.”

Ruddiman says his calls for compulsory accreditation are garnered by genuine fears that the “vast majority” of Australia’s 17,000 financial planners and many junior accountants are not experienced enough in SMSFs, leaving themselves vulnerable to ASIC, and their trustees vulnerable to the Australian Taxation Office (ATO).

For advisers, the risks exist in the maze of complex legislation attached to SMSFs, including little understood rules on governing which assets can be included in a fund. For accountants, the risks lie in their ability to properly audit a SMSF.

Under-qualified accountants

In fact, Ruddiman fears that it is accountants — who may only be familiar with the Income Tax Assessment Act — that run the biggest risk of falling foul of regulators for not meeting the compliance requirements of the Superannuation Industry Supervision Act.

“You have SMSFs with millions of dollars worth of assets in them, and first year CPA [Certified Practicing Accountant] graduates auditing the funds without any understanding of what the requirements are,” says Ruddiman.

On this point Alan Dixon is in absolute agreement. Although he believes many financial planners could benefit from extra education, Dixon says that because the administration of SMSFs is largely what makes them so unique, it is accountants and not financial planners who more urgently need to be accredited before they audit SMSFs.

He recently made the alarming observation that of 970 funds he’d taken over in his business, a large number taken from accountants had significant problems with the way their records had been kept. The creation of a compulsory SMSF auditors licence would be the best way to solve this problem, Dixon says.

As for financial planners, Dixon is of that view that mandatory standards would only be acceptable as long as there were a number of registered offers, costs were kept to a minimum, and older financial planners with years of proven experience, but with no contemporary qualifications, could be exempted from further study.

But will any of these suggestions become law, or are SPAA’s recommendations nothing more than froth and bubble?

Ruddiman said in June that he was “impressed” by the Assistant Treasurer’s response to their suggestions. But given the Government’s recent attempt to wind back some of the more unpopular and overly burdensome aspects of the FSRA, it might take some major botches on the part of financial planners who offer SMSF advice to prompt the Government to heed SPAA’s advice.

It is also unlikely that the FPA will force members into compulsory SMSF accreditation. According to a spokesperson, the association already presents members with ample opportunities to increase their SMSF knowledge, including the recent development of both online training and a distance education learning package.