The federal government released its response to the Stronger Super or Cooper review in mid-December last year.
In regard to the recommendations adopted for the self-managed superannuation fund (SMSF) sector, the response was considered reasonable by the wider industry.
"We've got nothing to complain about really and we were very happy with the outcome," Self-Managed Super Fund Professionals' Association of Australia (SPAA) chair Sharyn Long says.
Townsends Business and Corporate Lawyers special counsel Michael Hallinan echoes this sentiment.
"I think the sector has got off very lightly. There are no real adverse changes being imposed," Hallinan says.
SMSF Strategies principal Grant Abbott agrees there were no proposed dramatic changes, which he thinks is significant in itself in the context of the sector's standing within the greater superannuation landscape.
"I think it was recognition that SMSFs are the largest sector of the industry and is possibly now too big to make any dramatic changes to," Abbott says.
Yet even though the sector remained relatively untouched by any regulatory changes, there were still some important new rules imposed that will make a difference.
Advice standards
One of the headline recommendations was on the educational requirements for financial planners. The proposed legislative change will see an additional element included in the RG 146 qualification process: a specialist stream for SMSFs.
Previously the onus had been on licensees to ensure their authorised representatives undertook some additional training or qualifications before they could hold themselves out as being an SMSF specialist.
"I think this change is critical. There really needs to be more SMSF expertise for people advising on SMSFs and this whole mandate is about lifting professional standards," Long says.
However, according to Long, not knowing what form this education standard is going to take yet gives the proposal a good degree of uncertainty right now. In that regard she says SPAA will be encouraging the government to incorporate the standards the professional body has developed for its own SMSF specialist adviser accreditation in the new RG 146 measures.
Abbott meanwhile does not believe the new requirement will make much of a direct impact.
"If you have a look at the existing training requirements or the competency standards that have been produced, they're probably as high as you can get. The key components are that you've got to read, understand and apply the law," he says.
"It seems to me you can sit and say we can even go higher, but the problem is it's not so much about the standards - I believe the standards are appropriate at the moment - it's the enforcement or the testing of those standards that is not happening."
He concedes the new rules may promote uniformity as far as SMSF specialisation is concerned, but may in fact lower standards if the RG 146 requirements are not as vigorous as existing ones and licensees choose to solely rely on them.
Outside of the rigours of the new education requirements, concerns also exist that the suggested reforms have not gone far enough.
Apart from financial planners, accountants, through the scrapping of the accountants' exemption, and auditors have also come under the scrutiny of Jeremy Cooper and the government. However, these are not the only professionals operating in the space that need to be regulated, according to Multiport technical services director Philip La Greca.
"There is no mandatory requirement for trustees to use licensed advice. The problem that creates is whatever service provider they use in between advisers and auditors, and that could be anybody, and there is no criteria what that anybody has to know and that's where the flaw is in the process," La Greca points out.
"For example, to call yourself an SMSF administrator all you need is basically an advertisement."
Abbott agrees and cites the important strategic area of estate planning as a good case in point.
"Currently lawyers also have an exemption and they haven't been brought into the playing field and I believe lawyers, particularly where you're dealing with estate planning, need to also show their competencies and also need to be licensed," he says.
Regulatory powers
The Stronger Super reforms have also broadened the powers of the SMSF regulator. The Australian Taxation Office (ATO) will now be able to impose fairer penalties on SMSFs that have breached compliance rules, with fines now having to be paid by the trustees themselves rather than the fund.
In addition, the ATO will be able to instruct SMSFs to fix the problem with the fund and can prescribe some additional education for trustees who have broken the rules.
Institute of Chartered Accountants in Australia head of superannuation Liz Westover believes the more equitable and flexible enforcement powers the ATO has been granted will make a difference to trustee behaviour.
"I think they're going to have a greater impact on trustee behaviour and the in-house asset rules is a classic example," Westover says.
"The government did not adopt the Cooper recommendation to ban in-house assets and I support this decision because the statistics from the ATO show when people were breaching the in-house assets rule they were really getting it wrong, not just making minor errors.
"This ATO penalty regime is going to have a far greater impact on ensuring people stay within the in-house assets rule than simply banning in-house assets, which would have impacted on people who were actually doing the right thing."
However, Abbott feels the imposition of the timing of the penalties may neutralise their effectiveness.
"It's always closing the gate too late. The problem is the enforcement powers mean the ATO can go and send trustees to mandatory education, but that's usually after they've gone non-complying or already breached the law. So it doesn't seem to make much sense to me," he says.
Auditing standards
Just like financial planners and accountants, SMSF auditors did not escape unscathed in the Stronger Super measures.
Under the new regime they will have to be part of a register maintained by ASIC, with the regulator given the added responsibility of developing competency and independence standards. In an unusual arrangement, the ATO will be the body to police any of the new standards created.
Westover says the government's acknowledgement that competency standards for auditors are needed is a positive step. She is also pleased ASIC was instructed to consider the existing competency standards for auditors the professional accounting bodies had already put in place before any new standards were developed. However, she pinpoints a few details of the recommendation that are confusing.
"We would have preferred to see the ATO as the registration body, but they've chosen ASIC and we're quite happy to work with ASIC to make sure the right outcomes are achieved," she says.
"But I really think the ATO was halfway there. We had the foundation for a really good registration in the first place albeit there were things that were needed to be done to make sure the integrity was improved.
"Also, what was missed is that some of the systems around auditor reporting haven't been addressed. Even if ASIC comes in and sets these competency requirements and has these independence standards, there is still no noise on the front of reporting by auditors directly to the ATO and I still see that as a flaw in the system."
Trust deeds
In the area of trust deeds the government has attempted to simplify documents and perhaps reduce the need for the continual need for deed updates with every amendment to the Superannuation Industry (Supervision) (SIS) Act.
To this end it is looking to introduce a 'catch all'-type arrangement whereby an assumption will be made that any activities permitted in the SIS Act or the tax laws will be deemed to be included in an SMSF trust deed.
Abbott says this approach is problematic.
"I don't think it's a bad thing personally. The problem with it is that generally the SMSF trust deed allows a lot of things and provides mechanisms for a lot of things. Unfortunately, when you have a look at the SIS Act it's generally prohibitive, so it dictates you can't do this and you can't do that," he says.
"So the recommendation is not a positive; it's a negative because you are trying to bring something that is negative in its nature to dictate the power a trustee has. So it's a nice thought, but it's a very difficult process to implement."
Abbott is also concerned it may lead to complacency among trustees not to have certain arrangements covered off due to the belief they have already been covered off by the law.
"For example, there is no definition of who a member is in the legislation. So you might say we'll just allow for whatever member is in the legislation and you'll end up getting caught in the process rather than correctly specifying a member includes this person and excludes that person," he says.
Hallinan doesn't feel the impact from this proposal will be too significant.
"I'm not overly fussed by it and it's not going to solve the world's problems. It's not going to improve investment performance, it's not going to improve compliance, so it's really hard to see how it's going to have a positive impact because it's such a small thing," he says.
Risk insurance
The risk insurance needs of SMSF members was also considered in the Stronger Super regime. The recommendation here is to make it mandatory for the investment strategy of an SMSF to consider the insurance requirements of its members in the areas of death and total and permanent disablement coverage.
"The fact that they've put it on the table I think is a great idea because they are quite correct, most SMSFs don't have insurance, which really does pose a problem in the event that a member becomes sick or there is death or disability," Abbott says.
While the idea is a good one, Abbott has questioned if the investment strategy is the correct place for the matter to be addressed.
"I think there needs to be a separate policy, a lot like an investment strategy that looks at all of the various considerations of the various members of the fund and any liabilities of the fund," he says.
Overall effects
As with any proposed industry changes there will be upsides and downsides for both consumers and professionals involved in the sector.
Long believes one positive outcome will be a greater recognition of true SMSF specialists among the general population.
"Among advisers this focus on SMSF expertise is long overdue. It means there will be opportunities for people who have set themselves up as SMSF specialist advisers to take advantage of the new regime because there will be players that won't want to go that extra step," she says.
"I think the marketplace for the consumer will become more aware of expertise in the sector."
La Greca thinks the competitive advantage specialisation could potentially deliver may lead to a change in the industry, not just among individuals but at the practice or dealer group level.
"As the educational standard starts to go up we will start to get more specialists. This could mean a change for licensees as well because a licensee may end up with say 12 core SMSF specialists who'll handle the real queries in this area and then there'll be referrals within the group, so they'll integrate more on that level," he says.
The end result could see financial planning practices operating more like accounting practices where a client will be referred to a different adviser depending on their advice needs, he says.
"For example, if you go into an accounting firm with an international tax problem the guy you are going to see is not the one who handles your personal tax situation," he says.
According to a few of the experts, there will be an impact on fees that will be favourable for financial planners but may be less palatable for their clients.
"The proposed changes will further cement the idea there is a specialist type of financial adviser dealing with SMSFs and once you have that if people are better advisers and have better credentials, then they should be able to charge a premium for their advice. With greater professionalism there's got to be a quid pro quo, which would be more emphasis on fees," Hallinan says.
Abbott agrees this is an inevitable consequence of the new regime.
"The whole of the Cooper review and all of these new changes will quite clearly mean there are going to be more costs involved in SMSFs. That's not a bad thing and advisers should be well remunerated and auditors should be paid for independent audits," he says.
"It could come as a shock to many trustees of SMSFs and I think the government needs to do a better sell on that outcome."
