SMSFProfessional-Ebook_v4_zx38v1 by Prime Group

SMSF Professionals

GUIDE FY 23/24

Partners

SMSF Professionals Guide FY23–24

Streamlining the delivery of professional services to SMSF clients

Australians are increasingly switching to SMSFs to shore-up their financial futures, attracted to the control and flexibility offered by independent retirement planning.

While lucrative, managing an SMSF can be incredibly complex, with trustees responsible for delivering strong investment outcomes for members while also ensuring compliance with ever-evolving tax and regulatory obligations.

This challenge has been further complicated by recent market volatility, characterised by elevated inflation, higher interest rates, and broader macroeconomic uncertainty.

With over 600,000 SMSFs currently operating in Australia, it has never been more important for trustees to seek the services of qualified professionals.

This white paper aims to unpack a raft of innovative solutions designed to help SMSF professionals deliver the best possible outcomes for their clients.

Specifically, the white paper draws on the expertise of leading innovators, which explain how their tools can simplify and streamline support for SMSF clients, tackling key pain points in the current operating environment.

Topics addressed in this white paper include:

Navigating the regulatory environment (in partnership with Heffron)

Embracing generational shifts and evolving technology (in partnership with Class and HUB24)

Designing retirement solutions for a longer life (in partnership with Allianz Retire+)

Exploring the potential of cryptocurrency in SMSFs (in partnership with Digital Surge)

Leveraging tech to boost efficiency (in partnership with Ignition)

The role and challenges of outsourcing in the SMSF industry (in partnership with AccSource)

Overcoming tax hurdles (in partnership with Crypto Tax Calculator)

On behalf of SMSF Adviser and our partners, we hope this white paper equips you with the tools and resources to take your business to the next level.

Navigating SMSF management: Regulatory changes, challenges, and strategies for success

Embarking on a journey as an SMSF trustee can offer substantial financial rewards and exceptional flexibility. However, this path also entails the crucial responsibility of staying abreast of legislative changes and regulatory updates.

A number of changes to the taxation of SMSFs were announced in 2018, with some calling for them to be repealed in this year’s May budget. While this was not to be, the government announced in February this year that it plans to introduce a $3 million superannuation cap in 2025–2026.

The cap would mean that the earnings on balances above $3 million would be taxed at 30 per cent rather than the standard 15 per cent. Prime Minister Anthony Albanese says the change would “strengthen the system by making it more sustainable”.

However, concerns have been raised that the change could actually disproportionately impact SMSFs, with experts saying that one in three SMSF trustees seeking advice will be harmed.

Despite the change not being introduced for another two years, 24 per cent of SMSF holders have already been observed speaking with their advisers about what the change could mean for them, according to Investment Trends.

Speaking with SMSF Adviser about regulatory changes and recent market developments, Lyn Formica of SMSF consultancy Heffron said the $3 million cap is at the forefront of everyone’s minds, with many concerned it could bring into question the value of an SMSF.

“[The cap] called some in the industry to question

the relevance or the future of self-managed superannuation funds because as we understand it, a large number of the people who will be impacted have self-managed superannuation funds.”

The proposed cap has raised concerns that eligible SMSF members might consider withdrawing their entire superannuation balance to circumvent the cap.

However, Ms Formica says that modelling by Heffron managing director, Meg Heffron, has revealed that not all SMSF members will be impacted by the change, and that there is no indication that withdrawing all your benefits is what should be done.

“For some people, withdrawing the excess above $3 million will be a good idea. For some people it won’t. There are a number of variables to consider, but none of that modelling suggests that people should be withdrawing all of their superannuation immediately,” she said.

“Certainly, you’re still going to have balances in self-managed super funds and I think if we’re questioning the relevance of self-managed super funds, then you’re assuming that the majority of the members of self-managed super funds have more than $3 million in super.”

For many of Heffron’s client base, the cap won’t present an issue. Of their 5,000 funds, under 10 per cent have members with over $3 million in super, whilst a massive 65 per cent have under $1 million.

The proposed cap is far from the only regulatory change that has SMSF trustees and advisers

concerned, with issues regarding non-arm’s length (NALI) transactions still presenting a challenge.

Amendments in 2018 changed NALI rules to account for more transactions.

“While the previous NALI rules ensured non-arm’s length income was taxed at the highest marginal income tax rate, rather than concessional superannuation rates, they did not capture nonarm’s length expenses in all circumstances,” said Treasury.

“If the level of income, before expenses were deducted, was on an arm’s length basis the pre2017-18 Budget NALI rules would not apply to tax minimisation strategies where fund expenditures were reduced through non-arm’s length dealings.

“The NALI rules were extended to expenses with the passage of Treasury Laws Amendment (2018 Superannuation Measures No. 1) Act 2019. Income is now treated as NALI where expenditure incurred in gaining or producing it was a nonarm’s length dealing. If an expense is considered NALE, it taints any income associated with the scheme as NALI, which is then taxed at the highest marginal rate.”

Ms Formica says that alongside the $3 million cap, recent proposed changes to NALI rules create a divide between SMSFs and other super funds.

“Now we’ve got one rule for SMSFs and one rule for non SMSFs,” she said, adding that the consultation regarding the $3 million cap very much hinted at the government wanting one system for everyone.

“And then we end up with a non-arm’s length income exposure draft having significant differences between SMSFs and non SMSFs. And to tell you the truth, I still can’t understand where the mischief is here. I don’t understand what they think SMSFs are doing that warrants these draconian rules.”

In addition, the mechanics of the NALI legislation could lead to severe outcomes for capital gains. Concerns were raised after the ATO issued

Determination TD 2023/D1 in June, which outlines the way in which a capital gain derived from a NALI transaction could affect all capital gains of the super fund for the income year assessed as NALI.

This could present a major issue for SMSFs, leading to genuine arm’s length capital gains being taxed at 45 per cent.

The SMSF Association and Tax Institute have called for the ATO to hold off finalising the determination until legislation governing NALI is settled.

Methods for staying up to date

With so much for SMSF trustees and their advisers to stay on top of, Ms Formica says there are methods that can be followed to ensure they stay up to date.

“I think we’re really fortunate that experienced professionals do have a wide range of resources to keep themselves up to date,” she said.

“There are many of us in the industry who provide update webinars, you’ve got your podcasts, blogs, there’s daily email alerts keeping you up to date, you can join industry associations discussion group, those sorts of things. There’s lots out there. I think I’d just really get the message across that, take up what’s out there, take advantage of it all. The regulation of super and SMSFs is a complex area.

“Things do change, but it’s a lot easier if you stay up to date, so be that sponge, absorb everything that’s out there. Even if something isn’t instantly relevant to you, park it in the back of the brain because you don’t know if the next client may have that particular issue to deal with.”

SMSF members should lean on industry professionals and regularly partake in bite-sized courses to ensure they are up to date and getting the best out of their fund.

Heffron offers a number of options to support SMSF members and professionals, click here to find out more.

Embracing generational shifts and evolving technology

Older Australians continue to dominate the SMSF space. As of June, last year, the median age of SMSF members stood at 62.

However, amid mounting financial uncertainty, Millennials are increasingly looking to SMSFs to build and secure their wealth.

According to data from Stake, nearly 50 per cent of all SMSFs established in the 2022 financial year were initiated by individuals aged 35 to 44.

Moreover, the number of SMSFs with a balance of under $50,000 almost tripled from the 2021 to the 2022 financial year, from just under 12 per cent to over 31 per cent.

General manager of growth at Class, Jo Hurley, and executive, group strategy at HUB24, Greg Hansen, recently sat down with SMSF Adviser to break down the growing interest in SMSFs among Millennials.

The principal catalyst for this trend, Ms Hurley explains, is financial uncertainty driven by either change to the economic environment or legislative reform.

“I think SMSFs are really a vehicle that has always been popular in times of uncertainty,” she says.

“But having been in the industry for a long time, I can safely say that legislative change and periods of uncertainty come and go, and SMSFs continue to show a steady pace of growth.

“…I’m always looking at these periods of change as opportunity for SMSF growth and no more so than now.”

Mr Hansen observes that a key driver of this dynamic is the greater level of control over finances offered by SMSFs.

“In our experience, a number of younger consumers, Millennials in particular, are very engaged with their financial situation,” says Mr Hansen.

“They will have an SMSF at some point in their future, they want that control and they want the benefits that come from an SMSF. But their experience to date has been interesting, they go seek financial advice.”

Mr Hansen explains that, more specifically, Millennials are discovering that staying in a typical APRA-regulated super fund could be losing them money.

“The advice to this point has been to stay in an APRA-regulated fund and grow your balance until a point in time when you’ve got a larger balance and you can make that transfer [to an SMSF].

“We think there’s a whole range of disadvantages to that, including the fact that there’s capital gains tax built into the unit price of APRA-regulated funds.

“What you’re doing by growing your balance is growing your disadvantage over time. So, by the time you do make that transfer, you are substantially limiting accumulation potential when compared to those who established an SMSF earlier on in life.”

Millennials drive technological uplift

The emergence of this new wave of Millennial SMSF trustees has also helped spur technological advancements and bespoke tools designed to cater to this younger demographic.

Generally, Millennials are experienced in navigating the internet, online platforms, and information. These capabilities alter the approach

that SMSF advisers and accountants adopt when interacting with them.

According to Ms Hurley, while technology already allows accounts to leverage real-time access to important financial information when assisting SMSF trustees, re-evaluating how professionals deploy the technology is important when dealing with younger clients.

This may include facilitating access to regular ‘health checks’, data feeds, integrations, and the latest investment choices to allow clients to assess the fund’s progress.

But ultimately, these technologies would need to be adaptable, appealing to clients across all demographics and remaining suitable throughout the fund’s life cycle.

“Any advances that we make in this area can benefit all SMSF members.

“You’ll find those members also get older and become more mature in their SMSF journey –looking for better information and improvements all the time to help them consistently make decisions, particularly at critical life moments,” Ms Hurley adds.

For Class, an SMSF software business specialising in administration technology, these tools are used to check data feeds and integrations, perform SMSF health checks, and evaluate the choices in investment that people are making. Ms Hurley says it’s an area that customers are excited to be a part of.

“Our users are really engaging in our training and education to be able to get the most out of the technology available to them, while also opening up access to that information to their clients to support better decision-making.

Advisory firms are also adapting to meet the needs of a younger clientele – not just in the SMSF industry, but across the board – with practices being altered to better deal with consumer preferences.

“It’s about how advisory practises really deal with change and deal with changing consumer preferences – particularly for those with younger clients,” according to Mr Hansen.

“[For example], The average Australian spends almost six hours a day looking at their phone, which [is] quite remarkable, there’s no question that’s the preference for a lot of people.

“So, whereas a lot of service providers are based on a mobile experience, it hasn’t been really the case for financial advisers or accountants. A lot of those services aren’t mobile-based, and so we’re looking at the emergence of client portals as a piece of technology that’s really important in helping people interact.

In addition to bolstering the user experience, Mr Hansen notes administrative portals like Class can bolster cyber security amid the rise in malicious activity.

The financial sector is being increasingly targeted by threat actors, according to researchers from Barracuda, who found that the financial industry was the fifth-most targeted industry by threat actors, making up 6 per cent of incidents.

Mr Hansen says that cyber security is paramount when dealing with SMSFs, and that a key driver for change in advisory and technology is the need to cover points of vulnerability within processes.

“We think the answer to this problem surrounds use of secure client portals. And particularly in an SMSF environment where you’ve got multiple professionals dealing with a client, these can be really useful because … the client’s got control of who sees that information and who they’re providing that information access to, but it’s all done in a secure way.”

Designing retirement solutions for a longer life: Allianz Retire+ AGILE approach

As life expectancy continues to rise alongside the escalating cost of living, retirees are encountering greater challenges in sustaining their livelihood solely from the income provided by their superannuation. The concept of individuals outlasting their superannuation funds has now become a tangible concern.

Retirement is supposed to be an exciting time when individuals are able to enjoy the fruits of their years of labour. Instead, the current economic climate means some retirees either struggle to make ends meet, are forced to go back to work, or draw down less income from their retirement savings.

As a measure to combat the fear of financial instability and uncertainty, Allianz Retire+ has recently launched Allianz Guaranteed Income for Life (AGILE). AGILE is a flexible retirement income solution providing the certainty that comes from combining a protected investment with potential for performance growth, as well as a guaranteed lifetime income.

Allianz Retire+ chief product and marketing officer, Simon Aboud, says the product was designed to meet the need of retirees living longer.

“One of the things we’re seeing is that retirees are living longer, which is great news, but one of the challenges that comes with that is the need to fund retirement over multiple decades,” says Mr Aboud.

“For example, if you take a couple who are aged 65 today, there’s a 50 per cent chance one of them will live well into their nineties. So that’s really the opportunity and the challenge that we’re focused on with this product.”

Mr Aboud says there are a number of other risks retirees face outside of longevity and outliving their income.

“The second risk we look at is market risk or sequencing risk. So, the risk that particularly in the early stages of retirement, there’s a material drawdown or fall in equity markets. And that can have quite a profound impact on people’s ability to fund their retirement. With many Australians reliant on equities and share exposure, and particularly in those early stages, it means that there’s potentially less time for clients’ portfolios to recover,” he notes.

The third risk, Mr Aboud explains, is inflation risk.

“[Inflation] is very topical at the moment, people are very aware of that, but it is effectively the diminishing purchasing power of your funds over time. And what we think about and see is the cumulative effects of all of these risks and the way that people react to them is really this fear of running out of money,” he says.

“And the very natural response that many people take is to reduce the income that they draw down from their retirement savings in order to protect that capital over the long term. But the consequence of that is that people live a potentially more frugal retirement than they otherwise could. And we see a number of people ageing and passing away with much of their superannuation balance intact.”

Therefore, the industry is faced with the task of devising retirement income solutions that instill individuals with the confidence to spend during their retirement years, backed by a sense of income certainty that can effectively navigate and mitigate the various risks that may emerge.

User-friendliness is key

Mr Aboud adds a crucial aspect is to design a product not only offering a reliable income stream but also remains user-friendly for retirees to manage their portfolio effectively.

“The other element of the product design is we know that it needs to be easy to use and simple to access. So, a lot of the feedback we had from advisers is around making sure when you’re bringing products to market like this, that they fit within their ecosystem and they’re easy to use.

“To that extent, the product’s designed so that it can fit inside an account-based pension or inside a superannuation fund as an investment option. And it sits on the administration platforms.”

AGILE’s balance of flexibility and guaranteed income makes it perfect for those looking to establish a stable income anchor for retirement with an SMSF.

“So, this style of product may suit a self-managed super fund because it combines certainty of a guaranteed income, but with flexibility. And let me just talk through some of the aspects of that.

“The product’s been designed so that it can fit into a superannuation fund, including an SMSF during the accumulation phase. And that really helps people approaching retirement to start to put the building blocks that you need and you will need as you transition into retirement early.

“What we know is about 50 per cent of people will retire at a time not of their choosing, whether that’s due to health reasons, becoming a carer, or potential redundancy. So, it’s important to have the flexibility to start to build those blocks early and be ready for retirement.”

Within AGILE there are a number of specific features empowering financial growth, giving clients the combination of control and flexibility, but with reliability and certainty.

“The product allows clients to continue to have exposure to growth assets in the form of returns

linked to equity indexes up to a maximum return, but with protection. So that if there are market drawdowns, the client doesn’t experience the full market drawdown. So, it allows the clients to not have to put the brakes on the portfolio, but continue to have that potential growth as they approach retirement.

“Within that, thinking about some of the different options, you can basically skew the product. So, it has either an Australian equities index-linked returns exposure or an international equities index linked returns exposure, up to a maximum return, with different levels of protection. So, either a partial protection or a total protection option. And what that really does is it puts the client and adviser in control of how this product fits into and complements your broader portfolio.

“Finally, the client has the option to turn on the income when they’re ready, after the first three years of being in the product. So, the client knows what percentage of their account balance will be converted into an income stream when they commence their investment, and this rate grows each year they wait to start their lifetime income. And when they’re ready, they can just let us know and convert it into a guaranteed lifetime income stream.”

Mr Aboud adds it’s an exciting time for the retirement income space, with a range of innovative resources increasingly available.

“There’s a lot of innovation that we’ve got to bring to market, and we know that others are working on and bringing to market,” he observes.

“So, I think you’re going to continue to see this evolution of the next generation of retirement solutions. And what comes with that is enhanced tools and education and information to support that, I guess, rollout of a next generation of retirement products.”

*Withdrawals made in the first 10 years may be subject to a Market Value Adjustment. Withdrawals may also reduce your lifetime income payments if they have started.

This material is issued by Allianz Australia Life Insurance Limited, ABN 27 076 033 782, AFSL 296559 (Allianz Retire+). Allianz Retire+ is a registered business name of Allianz Australia Life Insurance Limited.

This information is current as at August 2023 unless otherwise specified. This information has been prepared specifically for authorised financial advisers in Australia and is not intended for retail investors. It does not take account a person’s objectives, financial situation or needs. Before acting on anything contained in this material, you should consider the appropriateness of the information received, having regard to your objectives, financial situation and needs. The returns on the Allianz Guaranteed Income for Life (AGILE) product are subject to a number of variables including investor elections, market performance and other external factors, and may differ from the information contained herein. Past performance is not a reliable indicator of future performance.

No person should rely on the content of this material or act on the basis of anything stated in this material. Allianz Retire+ and its related entities, agents or employees do not accept any liability for any loss arising whether directly or indirectly from any use of this material. Use of the word ‘guarantee’ in this material refers to an assurance that certain conditions or contractual promises will be fulfilled by Allianz Retire+ from the available assets of its Statutory Fund No 2, in relation to the product terms. This includes ‘guaranteed’ income payments in the Lifetime Income Phase which will be paid from the available assets of Statutory Fund No 2, noting that Allianz Retire+ may terminate the product in certain limited circumstances as outlined in the Product Disclosure Statement referred below. Allianz Australia Life Insurance Limited is the issuer of AGILE. Prior to making an investment decision, investors should consider the relevant Product Disclosure Statement (PDS) and Target Market Determination (TMD) which are available on our website (www.allianzretireplus.com. au).

PIMCO provides investment management and other support services to Allianz Australia Life Insurance Limited but is not responsible for the performance of any Allianz Retire+ product, or any other product or service promoted or supplied by Allianz. Use of the POWERED BY PIMCO trade mark, or any other use of the PIMCO name, is not a recommendation of any particular security, strategy or investment product.

Exploring the potential of cryptocurrency in SMSFs

Cryptocurrency stands as a compelling modern asset class, demonstrating its potential for both substantial returns and intricate market dynamics since its initial surge in the 2010s.

Bitcoin, the first cryptocurrency created, has emerged as a persuasive choice for discerning investors. Its resilient trajectory, marked by consistent growth and widespread adoption, underscores its potential as a store of value.

An article written by Forbes in 2010 said a single Bitcoin could be purchased for roughly $0.0011 Australian dollars at the time of writing. At the time of writing, Bitcoin is just over A$40,000. However, with the potential for high rewards comes high risk.

Bitcoin’s decentralised nature, limited supply, and increasing recognition by established financial institutions have bolstered its reputation. This, combined with an impressive average percentage return since inception, suggests Bitcoin has demonstrated its ability to offer both stability and opportunity within the evolving landscape of investments.

As mature investors navigate the intricate landscape of cryptocurrency investments, it’s essential to approach it with a wellinformed strategy. Conducting thorough research, understanding market trends, and diversifying one’s portfolio can help mitigate the inherent risks. Regulatory developments and technological advancements also play a significant role in shaping the crypto industry’s trajectory. Additionally, Bitcoin’s historical price patterns have shown a recurring four-year cycle characterised by decreasing supply events, which has historically led to periods of both rapid appreciation and consolidation.

The introduction of this new asset class has captured the interest of the SMSF industry, with many looking to expand their portfolio.

Dan Rutter, CEO, and Josh Lehman, CTO of the cryptocurrency trading platform Digital Surge, highlight to SMSF Adviser that there are several compelling factors contributing to the appeal of cryptocurrencies.

“It is a new asset class,” says Mr Lehman “like existing asset classes, real estate, gold, and stocks. If you are looking at your investment strategy, it’s always a good idea to consider diversifying into different investments.”

Crypto’s distinct qualities as a high-liquidity asset class, Mr Rutter adds, make it an attractive option for a portfolio diversification strategy.

“Crypto is largely unpegged from the other asset classes, if real estate’s going down, it doesn’t necessarily bring down your other assets. If you do diversify over multiple asset classes, it does hedge your risk going forward.”

These qualities have supported growing interest in the asset class among institutional investment firms, including global wealth giant BlackRock.

“We’re seeing a lot of institutional interest in this asset class, like with what’s happening in the US with BlackRock filing for their ETF, which is the largest fund in the world. I think the CEO earlier today said that essentially, Bitcoin is the digital gold. It’s a new asset class, it’s here to stay.”

BlackRock’s filing has sparked a trend, inspiring other asset managers to follow suit.

But given persistent volatility into the crypto market, prospective investors need to tale caution before opting in, Mr Rutter warns.

“[As] with any high-risk investment, there’s potential for large gains and larger losses so you do need to mitigate your risks. Only allocate what you’re comfortable with within your portfolio. Some people say 5 per cent, some people say 10 per cent – that’s up to your strategy.

“And then within crypto itself, you’d certainly have riskier investments. So, if you look at Bitcoin or Ethereum, they’re your long-term cryptos that are generally far more stable over time.”

Mr Rutter continues: “There are thousands to choose from as you go down to the lower caps, there’s more risk of potential downside, but there’s also a potential upside. So, you’re going to have to make sure that you are investing according to your investment strategy.”

Considerations for SMSF trustees entering the crypto market

For SMSF trustees, there are several factors needing to be considered before investing in crypto.

Mr Rutter says meeting local compliance standards is among the most important considerations.

“SMSF accounts generally need to be created on a local Australian exchange that has the ability of actually setting up an SMSF account. SMSFs are an Australian vehicle so international platforms don’t necessarily know how to KYC an SMSF,” he explains.

“Making sure that you’ve got the account set up correctly [is key], and then you can get your data out to be able to do your end of year compliance.”

Mr Lehman stresses the importance of understanding an SMSF’s legal obligations and ensuring that trustees comply with the ATO and ASIC.

He adds SMSFs need to “ensure that the trustee and investment strategy actually allows for the purchasing of crypto, and that what they’re investing in aligns with their long-term strategy.”

Other considerations, he continues, include fee arrangements, the level of support available when encountering challenges in managing crypto assets, and security.

SMSFs are encouraged to take a conservative approach to crypto investing when first entering the market to mitigate risks.

Safeguarding investment and bolstering security

As a digital currency, crypto is vulnerable to cyber attacks, with ransomware threat actors attracted to its anonymity and decentralised nature.

Investors also risk losing access to their crypto wallet due to inadequate storage practices or misplacing the storage device, such as an old hard drive or laptop.

But innovators have developed security measures to help strengthen an investor’s security posture, says Mr Lehman.

“We’ve now got dedicated companies that build hardware devices, they’re PIN and password protected, and you have a backup of your seed phrase, which is a way to recover it.

“[Platforms]that store gold in vaults also have the ability to store hardware wallets and seed phrases for cryptocurrency.”

Hardware wallets provide a secure solution by keeping online information offline, effectively safeguarding it from cyber criminals. They serve as the optimal choice for individuals who prefer to personally manage the custody of their assets rather than relying on a service. Hardware wallets are particularly well-suited for long-term investments.

Empowering advisers by bridging the knowledge gap

Given the relatively novel nature of cryptocurrencies within the context of SMSFs, many advisers are exploring opportunities to bridge the knowledge gap.

Mr Rutter says Digital Surge has been working to meet this demand via its education platform, offering a comprehensive toolkit designed to help advisers meet their compliance obligations.

“In the last couple of years, we’ve worked closely with a lot of advisers, and with their feedback, we’ve built an adviser portal, which allows the adviser to access their client’s records automatically, removing that additional barrier for SMSF investors at the end of financial year.”

Digital Surge also offers a corporate affiliate program, designed to streamline the customer onboarding process.

The program includes automatic account creation or a dedicated landing page with branded options for the partner.

“When customers create their account, they’re automatically linked to that partner, which then gives the partner access to the customer’s reporting automatically within their partner portal,” Mr Rutter adds.

The platform also includes revenue share options available to partners when their customers transact online.

In an ever-evolving financial landscape, where the integration of cryptocurrencies into SMSFs introduces both opportunities and challenges, Digital Surge’s proactive engagement with advisers emerges as a beacon of support. By harnessing technology to streamline data accessibility and fostering collaborative learning through their affiliate program, Digital Surge paves the way for a more informed and efficient approach to managing cryptocurrency investments within SMSFs.

As the realm of digital assets continues to unfold, these initiatives not only empower advisers but also underscore the commitment to simplifying complexities, thereby contributing to the long-term success of matured investors in cryptocurrency markets.

Leveraging tech to boost efficiency

The financial services sector is on the frontline of the tech revolution, being one of the first adopters of the latest innovations in software, computing, artificial intelligence (AI) and machine learning.

These advances have sought to improve all facets of the services delivery process, helping to reduce business and consumer costs, simplify compliance, drive lead generation, and enhance the consumer experience.

SMSF professionals – including trustees, accountants, and advisers – are among the beneficiaries of these efficiency improvements, given the unique set of complexities surrounding client onboarding, compliance, and accounting.

Tech-driven enhancements for day-to-day operations have never been more important. Onerous regulatory settings are constraining service propositions at a time when there’s a rise in demand for professional services, including from the ever-growing SMSF space.

Policymakers have sought to address efficiency constraints by exploring measures aimed at easing the regulatory burden for SMSF professionals, including via the recently published Quality of Advice Review (QAR).

But in the absence of legislative reform, the corporate sector has stepped up to produce better outcomes for professionals and their clients, using the latest technology at their disposal to overcome stubborn hurdles.

David New, managing director, APAC at workflow automation platform Ignition, explains how the platform’s offering has addressed long-standing pain points for accountants.

Speaking to SMSF Adviser, Mr New says the platform was developed by co-founder and CEO Guy Pearson to address challenges encountered during his own tenure as an accountant.

“He was personally very frustrated with the way that the relationship between client and accountant was managed, particularly from the onset – the client proposal and engagement piece,” he explains.

“He was similarly frustrated about the amount of time that accountants spent collecting payments from their clients.

“So, he was adamant – he wanted to try and reinvent that whole premise around the initial relationship.”

Mr New describes Ignition as a “one-stop-shop” for accountants looking to grow and scale their practices.

“Ignition provides users with proposal templates, client engagement resources, and payment collection services,” he says.

“At least in the local marketplace, there’s nobody else that has put it together nearly as neatly or as cohesively as what we have in the one solution.”

Service clarity

Ignition protects SMSF professionals from out-ofscope work or ‘scope creep’, by clearly defining a services agreement via carefully constructed client engagement letters.

This aligns with guidance from the Tax Practitioners Board (TPB), which stresses client engagement letters offer the best protection for accountants in the event of a client dispute.

“If there’s ever any contestation or any argument around that, it’s very clearly documented and has been signed off by the client as well,” he observes.

Specifically, Ignition provides ready-made templates that are approved by accounting bodies including Chartered Accountants Australia & New Zealand, the Institute of Public Accountants, CPA Australia, and bookkeeping firms and associations.

The templates are designed for a raft of professional services, including SMSF proposals and client agreements.

“The SMSF space seems to be a fast-growing area and the more templates we’re able to provide, the easier it is for accountants to adopt a solution,” Mr New explains.

Revenue support

Importantly, the platform makes it easy for SMSF professionals to engage clients, bill and get paid for all of their work – even when the scope changes.

“Generally, our customers have no debt collection requirement whatsoever, because the platform collects the payment either upfront or upon completion of the workup depending on what agreement has been signed,” Mr New says.

“We have reports of debt collection having been reduced to zero. So, SMSF professionals are able to focus on providing more services and a more streamlined client offering, as opposed to spending their time on mundane tasks and admin, and the collection of debts.”

Ignition’s offering can also help boost underlying revenue by including upselling opportunities to end users from within the platform.

“We have features within our software that allow multiple options to be provided to their clients,” Mr New continues.

“So, it might be that they’ve signed a client up on a fairly simple engagement around a self-managed super fund and an income tax return. But as renewal comes around, they’re able to provide

various options that may include other services they’re providing to other clients – either on a monthly or an annual billing rate.

“Quite often, they’ll be able to sell other services, and as a result, we do see an increase in revenue coming from existing customers that are using Ignition as their platform.”

Platform agility

Ignition’s service features have been gradually built into the platform.

“We’ve spent a large amount of the last five to 10 years adding features and making it a more comprehensive product, while also extending our reach globally,” Mr New continues.

This includes incorporating the latest AI technology.

“AI is something that we’re watching very closely, assessing how we adopt and embrace it more within the system,” he reveals.

“There’s certainly a lot of effort being spent in that area at the moment.

“So, we’re looking at how we do that, always keeping one eye on the latest technology. AI is certainly very prevalent at the moment and something that you’ll hear more about in the coming months.”

Ignition offers a range of plans and pricing options, for accountants and professional services businesses.

“We’re always revising our offering to make sure that it’s competitive. We revise and refresh it consistently over time,” Mr New concludes.

If you would like to learn how Ignition can empower your firm to put an end to late payments, unbilled work and mundane repetitive admin forever, visit ignitionapp.com

Unlocking growth: The role and challenges of outsourcing in the SMSF industry

Outsourcing has become a mainstream measure for organisations looking to bolster their workforce with a relevant talent pool.

The SMSF industry is no different, with accounting and financial advisory firms using offshore staff to take the strain off their onshore workers, and bolster their overall offering.

Outsourcing work provides organisations with a number of strategic solutions that increase the value of their proposition and provide an avenue for company growth in regard to capacity and offering.

Speaking to SMSF Adviser, Boobalan Madhavan, founder and CEO of AccSource says there are a number of ways in which organisations can benefit from outsourcing, including the alleviation of talent pool constraints.

“In today’s landscape, the talent pool is one of the significant challenges faced by any industry including the accounting industry. It’s not just an SMSF industry issue, it is all industries that are facing this issue,” he says.

In line with overcoming a dwindling talent pool, Mr Madhavan says building capacity and scaling up an organisation’s workforce, as well as adding value to its products, are both problems that can be addressed with outsourcing.

“If you already have a shortage of talent, then how would you build the capacity? When you have outsourcing as a strategic solution, it’s easy for you to build capacity without the hassles of building the required infrastructure.

“Scaling up your workforce becomes easier because you are not constrained by the talent pool. You can build your capacity very easily.”

In the same way, outsourcing work to offshore staff allows an organisation to add more value to their services, as they have “more bandwidth” to deliver better services to customers.

Challenges to consider

Whilst outsourcing seems like a no-brainer solution for organisations looking for growth, it presents a number of challenges that need to be considered.

The first of this is getting a complete buyin from your team. Mr Madhavan says that communication is key, and that explaining the need for outsourcing, as well as the process, is the best way to get a team on board.

“A good outsourcing strategy has five parts in it. The first one we need to address is why outsourcing? Why does the business want to outsource? Is it a matter of capacity building? Is it a matter of cost savings? Or does the business want to have access to global talent?”

A good way to do this is to position the adoption of an outsourcing solution as an opportunity for staff to move up the hierarchy. Rather than a staff member being required to do a task over and over again, they could become a manager of offshore staff who now do that task.

Mr Madhavan adds that evaluating whether outsourcing is a long- or short-term solution, and communicating that is the second step in winning over a team.

“Then the third part in a strategy is what to outsource? As a business, you should know what functions you want to outsource. For example, some businesses may only want to outsource the periodical reconciliations of SMSFs on a day-today basis.

“Then the fourth part is understanding the risks in implementing an outsourcing solution, and how those risks can be mitigated.”

Finally, on top of all this, an organisation must put budget into consideration to prevent unexpected expenses creeping up and compromising its efficacy.

Getting a complete buy-in from your team is crucial in ensuring the outsourcing process runs smoothly and integrates well with the current organisational structure, particularly as job insecurity only a decade ago used to be a major concern for staff.

On top of the need to get staff on board, organisations need to ensure they develop a deeper understanding of logistical issues.

Mr Madhavan says that knowing the business case for adopting an outsourcing solution is “imperative and critical.” In addition, understanding what the industry norms are for what organisations use outsourcing for can provide companies with a guide as to the areas of work outsourcing is best suited.

“For example, if you are talking about SMSFs, it’s imperative for us to understand what the industry norm is. What is the need for the industry to embrace outsourcing?

“Within the industry, what sort of activities are being outsourced?”

Pros and cons of outsourcing

Finally, there are the pros and cons that come from different geographical and economic factors.

“From an outsourcing perspective, when you are going to a particular foreign country you need to understand the availability of a talent pool in that country,” says Mr Madhavan.

“What economic and political factors need to be considered? What are the cultural and timing differences and how are they going to impact in terms of outsourcing engagement?”

So, your organisation has decided that outsourcing is the right solution and you are going ahead with it. Whilst this could be a major opportunity for organisational growth and expansion, companies need to implement an effective outsourcing structure and engagement model to ensure success.

Mr Madhavan says that integrating the offshore team within the onshore team “constitutes an effective outsourcing structure.”

“Then we move to the roles and responsibilities. Defining the roles and responsibilities of the offshore team and the onshore team in terms of service delivery, that becomes part of an effective outsourcing structure.

“Then it’s the processes. Mapping the process between the offshore and onshore teams is critical in terms of service delivery. Offshore teams should know exactly where to start and where to end. And in a similar fashion, the onshore team should know where to start and where to end. And there will be areas of overlap that have to be clearly mapped out in the process.”

Mr Madhavan adds that having a project champion responsible for implementing the offshore team is one of the best practices of a smooth and successful implementation of outsourcing.

“Having a project champion is one of the best practices and it paves the way for the success of the outsourcing relationship. It’s like anything, if you are someone responsible for the onshore team as well as for the offshore team to implement an effective outsourcing solution, that project champion is the one who is going to determine the success of any outsourcing relationship.”

Finally, having a sound feedback mechanism that allows staff to report the good and bad of the solution is incredibly important in streamlining business.

“And this is not a one-time activity, this has to be on an ongoing basis because outsourcing is not a set-and-forget solution.”

Mr Madhavan says, ultimately, the one takeaway from his knowledge on outsourcing is that communication is the bottom line.

Communicating with offshore and onshore staff, understanding opinions on the solution and getting important feedback.

“I have seen businesses, SMSF administration platforms, financial planners, they have been very, very successful in terms of outsourcing engagements. It’s purely because of communication.”

Once an organisation is ready to outsource and has an understanding of the process, it is important to go with the right outsourcing agency.

Mr Madhavan says a big part of this is choosing an agency that caters to your business model. This starts by talking to the agency and exploring what they have to offer.

“To choose the right provider for your business you need to engage with them,” he continues.

“Gain an understanding of their business engagement models, understand how they price, and what exactly is the process involved in working with that particular outsourcing solution provider in implementing an outsourcing solution for your business.

“Then understand the culture of the company. In today’s world, the culture is the key.”

Overcoming tax compliance hurdles

Managing an SMSF is a process that can be incredibly rewarding, granting flexibility, greater control of investment, and a much larger nest egg when managed well.

However, it’s also a time-consuming endeavour that requires dedication, attention, and constant learning – particularly as legislation regarding super and tax evolve over time.

A few years ago, the crypto boom threw a curve ball into the mix as cryptocurrencies began being viewed as a store of wealth rather than their original purpose as an alternate currency.

Cryptocurrencies like Bitcoin and Ethereum are viewed by federal authorities, like the ATO, as a legitimate form of investment provided that they meet relevant criteria.

The ATO says SMSF investments in crypto assets must be allowed by both the fund’s trust deed and investment strategy, while also complying with government regulations, including the Superannuation Industry (Supervision) Act 1993 (SISA) and Superannuation Industry (Supervision) Regulations (SISR).

Speaking with SMSF Adviser, director of Cadena Legal, Harrison Dell, says SMSFs often run into issues when incorporating crypto allocations into investment strategies.

This includes a misunderstanding of the tax treatment of crypto contributions.

For example, at present, the ATO says crypto cannot be made at all as an in-specie contribution to an SMSF (individual contributions to a fund in the form of a non-monetary asset), as this is limited to listed securities and property.

“If the cryptocurrency is in your name, it would be a contribution from a related party, so would not be able to be made as an in-specie transfer,” said a spokesperson from the ATO on its online forum.

“Only listed securities and business real property can be contributed to a SMSF as an in-specie contribution. Crypto is not considered a listed security.”

According to Mr Dell, some SMSFs risk undermining their retirement strategies if they fail to account for tax arrangements for crypto allocations, including the treatment of in-specie contributions.

“If you bought the crypto asset for $1 and it’s worth $100, you’ve got a $99 capital gain and those regular CGT consequences will apply for you as an individual,” he explains.

“A lot of people are not accounting for their tax and particularly people who have SMSFs.”

CEO and co-founder of Crypto Tax Calculator, Shane Brunette, says managing crypto tax can be complicated without the correct knowledge and tools, as it is by nature built on a digital platform that is not designed to be read by accountants.

“With crypto, typically there isn’t a trusted third-party middleman. If you’re trading on one account, there might be a brokerage that has transaction history, but typically that’s not in a format that’s appropriate for accountants,” he says.

“So, there’s the issue of transforming that data into something that’s standardised fiat denominated in a format that’s trusted by accountants that’s comprehensible, that considers the fees for example, and the fee might be a third currency.

“There’s a lot of complexities just in that. But then also, quite typically in crypto, you might have multiple accounts or you might be interacting with a wallet directly.”

Mr Brunette’s online software service, Crypto Tax Calculator, allows users to identify, track and organise their crypto activity across multiple blockchains and exchanges, allowing them to understand their tax obligations in a simple and straightforward way.

Specifically, the service supports SMSF clients by interpreting raw blockchain data and producing a legible tax statement for accountants.

“We present everything in this really easy, understandable format,” Mr Brunette continues.

“So, if you get different clients with different brokers or different blockchains, what you see as an accountant or an auditor is all the exact same type of standard normalised format, which is fiat denominated.

“You can easily see what adjustments have been made during the reconciliation process and be able to clearly define separation between individual versus SMSF entity.”

This tool, Mr Brunette adds, enables SMSFs to extract the financial benefits of crypto investments with fewer administrative complexities.

“I think a lot of advisers out there, they might just put this into a too-hard bucket,” he says.

“… But the reality is, it’s an interesting asset class for particular clients. It might make sense to have a diversified strategy that does touch on this asset class to a degree.

“… There are systems in place and software in place that actually makes it super manageable, particularly for technologically focused clients.”

The Crypto Tax Calculator can also support compliance with the ATO’s ‘sold purpose test’, ensuring SMSF funds are maintained to deliver retirement benefits to members.

The software records transfers from personal crypto trading activity into an SMSF account, displaying the transfer on a separate system.

“Because everything’s recorded on the blockchain, you’ll be able to pick up if there has been any kind of transfer back to the individual for personal use, and you’d be able to mark those types of questions,” Mr Brunette explains.

“An auditor would be able to pick that up and see if any of the records have been adjusted. This is all available in the audit reports.”

Mr Brunette encourages advisers to discuss the nuances of crypto investing with their SMSF clients, and the tools available to simplify the process.

The Crypto Tax Calculator, for example, includes features designed to:

• Comprehend third-party integrations

• Assess the fidelity of transaction data

• Account for currency exchange complexities

• Help determine market prices

• Ensure transaction reports accord with local tax standards

“You want something that points out any discrepancies and highlights this to the accountant and the auditor,” Mr Dell explains.

“Are the reports built for the Australian Tax Office? Do they consider the capital gains correctly, especially from the transfer of individuals to the SMSF? [What] are the inventory methods that are being allowed for here? Does it integrate with other downstream software providers like Xero, etc.”

“… We spend a lot of time on our auditor report – trying to create a lot of transparency about what’s been done in the system [and] that’s really invaluable for these auditors. [A] lot of time is spent [getting] the auditor comfortable enough to be able to sign off on this year’s activity.”

Ultimately, these tools can help SMSF trustees manage crypto investments as simply and as efficiently as other asset classes.

“While it’s a new asset class, it’s the same old rules and it’s the same old questions. In fact, it’s easier once you understand the basis of the blockchain,” Mr Dell says.

Accountants and advisers can help by offering guidance on best practices for crypto assets, leveraging bookkeeping and management software like Crypto Tax Calculator.