Self-managed super fund trustees vary widely in the understanding of their role with many relying too much on professionals to fill in the gaps, said ATO-commissioned research.
The study found distinct clusters of SMSF trustees reflecting a wide variation in knowledge, confidence and engagement.
“Clusters vary from one extreme to the other,” said the ATO’s SMSF regulatory branch assistant commissioner Justin Micale, speaking at a recent Tax Institute event.
“There are those that are very confident and financially savvy, have an interest in investing and finance and attend seminars and webinars.
“Then, at the other extreme, we have unprepared trustees who lack the financial confidence and capability to manage their SMSF. They tend to be impulsive and ad hoc in their decision making, price-sensitive and reluctant to invest in financial advice.”
Mr Micale said this group of unprepared trustees, which comprised 13 per cent of the respondents, was also more likely to rely on informal information sources such as social media and friends.
“Interestingly, one-third of those in the unprepared group advised us that they regretted their decision to start their SMSF,” he said.
Another cluster, referred to as trusting delegators, did seek professional advice but put their complete trust in someone else, said Mr Micale.
“[This is] sometimes to their detriment. These trustees approach the running of their SMSF without doing any research of their own, leaving themselves vulnerable and open to being a victim of a scam,” he warned.
The independent study took in online surveys, mystery shops with SMSF professionals, in-depth interviews with trustees and professionals, and group discussions.
The research found that over a third of trustees lack the financial confidence and capability to manage their SMSF and put their complete trust in their adviser, 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,” said Mr Micale.
“For professionals, this can mean they have a more challenging client to support. It is clearly in the best interests of the ATO and SMSF professionals to address this issue.”
Another finding of concern, said Mr Micale, was that the majority of trustees left their compliance responsibilities entirely up to their SMSF professionals.
“While a trustee can appoint a professional to help them, the final responsibility and accountability lies with the trustee,” he said.
However, he said the positive influence of SMSF professionals on compliance behaviour of trustees did result in a better experience and outcome for the client.
“What the research really highlighted was the important and significant role that professionals play in helping trustees effectively run their SMSF and meet their regulatory obligations,” he said.
“While the ATO is certainly seen as a trusted source of information, trustees advised that they’re more likely to turn to their accountant or SMSF professional for advice and information.”
Mr Micale said it was very important that prospective trustees enter the system with their eyes wide open and with a good understanding of their responsibilities and obligations before signing up to 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 reminded SMSF professionals about the publication recently released by the ATO to help prospective and new trustees, called Starting an SMSF.
“This is the first in a series of guides [we] will be releasing to help trustees in the life cycle of their SMSF. We also have a range of other useful products on our website such as videos, checklists and webinars,” he said.
Philip King is editor of Accountants Daily and SMSF Adviser, the leading sources of news, insight, and educational content for professionals in the accounting and SMSF sectors.
Philip joined the titles in March 2022 and brings extensive experience from a variety of roles at The Australian national broadsheet daily, most recently as motoring editor. His background also takes in spells on diverse consumer and trade magazines.