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ATO highlights 'concerning results in SMSF research

 The majority of SMSF trustees rely too much on tax professionals in order to meet their obligations as trustees.

The majority of SMSF trustees rely too much on tax professionals in order to meet their obligations as trustees.

Trustees of self-managed super funds differ greatly in their understanding of their roles, with many depend too heavily on professional advisors to fill the gaps, according to ATO-commissioned research.

The study identified distinct groups of SMSF trustees, revealing an array of different levels of understanding, confidence and involvement.


Read more: The SMSF Auditor's Role in Self-Managed Superannuation Funds


"Clusters vary from one extreme to the other," explained The ATO's SMSF regulator branch's assistant commissioner Justin Micale, speaking at an upcoming Tax Institute event.

"There are some who are extremely confident and financially knowledgeable, are interested in finance and investing and are regularly attending webinars and seminars.

"Then on the opposite end there are trustees that aren't prepared who are not confident in their finances and capacity to effectively manage their SMSF. They are often quick and ad-hoc in their decisions, and are price sensitive and hesitant to take the financial guidance of."

Mr Micale stated that the trustees who were not prepared comprising 13 percent of respondents, were also more likely to be relying on sources of information that are not official like social media and friends.

"Interestingly, one-third of those in the unprepared group advised us that they regretted their decision to start their SMSF," the researcher said.

Another group, which is referred to as trusting delegations, had professional advice but put their total confidence in an individual Micale, he said. Micale.

"[This could be] at times to their disadvantage. Trustees are able to manage the affairs of their SMSF without conducting any investigation on their own, which leaves themselves open to being the victim of fraud," he warned.

The study was conducted by an independent researcher and included the form of online survey, mystery shops conducted by SMSF experts, in-depth discussions with professionals and trustees and discussions in groups.

The study found that more than three-quarters of trustees do not have the financial capacity and confidence for managing an SMSF and place their total confidence in their advisor He said.

"For those who do not have the benefit of sound advice, this often results in non-compliance and puts their retirement savings at risk," Mr. Micale.

"For professional professionals, it could indicate that they face an even more difficult client to assist. It is definitely in the best interest of professionals like ATO as well as SMSF professionals to take action to address this problem."

Another issue according to Mr Micale was how the vast majority of trustees have left their compliance duties entirely to their SMSF Audit experts.

"While a trustee can appoint a professional to help them, the final responsibility and accountability lies with the trustee," he added.

But, he added that the positive impact of SMSF experts on the compliance behavior of trustees has resulted in a better result for the client.

"What the report really underlined was the critical and significant role that experts play in assisting trustees in running their SMSFs efficiently and meeting their regulatory requirements," he said.

"While the ATO is regarded as a reliable source of information, trustees said they are more likely to seek advice and information from their accountant or SMSF practitioner."

Mr Micale stated that it is important that potential trustees enter into the scheme with eyes and have a clear awareness of their responsibilities and obligations prior to committing for an SMSF.

"Another interesting revelation from the research is that trustees develop habits in the first six months of operating their fund, so there's a real critical window for early engagement with trustees during this period," He said.

He also advised SMSF professionals of the recent publication released by the ATO to aid trustees who are new or aspiring to become trustees. The publication is titled Beginning the process of establishing an SMSF.

 

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