Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 99

What are wealth industry regulators thinking about?

At the SMSF Association Conference on 19 February 2015, representatives from Australian Securities and Investments Commission (ASIC), Australian Prudential Regulation Authority (APRA) and the Australian Taxation Office (ATO) spoke at a session called, ‘The evolution – Superannuation as the leader in the wealth industry’.

None of these presentations (which have been edited and paraphrased rather than quoted directly) have been posted on the respective websites.

Chris Jordan, Commissioner, ATO

We have a major transformation programme called ‘Reinventing the ATO’. It’s aimed at improving the overall experience of those who deal with us in tax or superannuation. It is designed for the majority who do the right thing, and not for the minority who do not. I want to cut red tape and make complying easier. Transforming the ATO is not just about communication and online products, it’s about how we change our approach, including to SMSFs.

Generally, within eight weeks we will risk assess SMSFs that have a contravention and we’ll notify them of any action. It used to be up to 12 months. Our three categories are:

  1. Low risk funds, where we have done a review and we will take no further action.
  2. Medium risk funds, where we will contact the trustees by phone about the contravention to resolve the issues. With some ongoing discussions, we can usually reach a ‘no further action’ point.
  3. High risk funds, where we progress to a comprehensive audit within three months of notification.

All trustees who have had contraventions noted will know where they stand quicker.

It’s extremely important how advisers, accountants, auditors and trustees work together to ensure all people understand their obligations and the need for adequacy of retirement savings. We work with ASIC to ensure the integrity of auditors in the sector. One example is we recently approached 280 auditors about their claimed level of activity who said they did not have a requirement to sit an exam. People don’t realise we can count the number of returns they have done. It’s not that hard.

We look at the 150 highest risk auditors each year out of the 6,650 auditors listed on 2013 returns. We will also contact about 300 auditors where we have concern about their independence. We work well with APRA and ASIC, and we’re on many forums and industry advisory groups.

We want to make sure people have modern technology, using the right software, and trustees and advisers know the difficulty of going from accumulation to pension phase, and we look at Limited Recourse Borrowing Arrangements. We are concerned about some of the heavy marketing and promotion of particular property developments using their funds as a vehicle. People might lose sight of the investment and be sold heavily on the tax benefits.

Less than 1,500 SMSFs have over $10 million, there are five SMSFs with over $100 million. They tend to be very old people in those funds who put a lot in over many decades, and I can tell you, they’re legitimate because we’ve looked at them. Often they’ve been lucky. They have not made contraventions. You don’t design a system for a handful of large SMSFs.

Peter Kell, Deputy Chairman, ASIC

ASIC’s primary role is not about regulating SMSFs as such but regulating the gatekeepers who provide products and services. Financial planners, accountants, SMSF auditors, mortgage brokers and product providers are pretty much all regulated by ASIC. Our aim is to ensure these professionals carry out their work in such a way that the SMSF sector continues to succeed. Obviously, if we see some of these gatekeepers fail, that’s when there will be a regulatory response.

We’ve had a particular focus on financial advisers in recent times. Last year we set up a wealth management team to look at the advice provided by the largest financial planning firms. We’ve also focussed on life insurance. In the SMSF space, we set up a task force in 2012 to examine some of the higher risk areas in this sector, and I’d like to mention two.

One is the risk of over-aggressive property spruiking, and I hardly need to explain why some of the activity at the moment lends itself to that sort of activity. This is not affecting the majority of SMSFs but we want to make sure it does not grow. We want to address the risky activity at the margin before it becomes widespread. Providing financial product advice which requires a licence includes making a recommendation or a statement to a person to set up an SMSF or to use an SMSF to purchase real property. It’s not the case if you’re operating outside an SMSF. The real estate industry has not necessarily understood that. We are seeking to take action against the unlicensed activity we see out there. Our aim is to make sure the spruikers do not build up a head of steam in a sector which is working well.

The second area of risk is our focus on false and misleading advertising. We have especially looked online at free set up or free benefits of one sort or another for establishing an SMSF. If only life was that simple. Normally what we have found when you look behind it is that there are significant costs. We don’t want people being encouraged to set up an SMSF when it’s purported to be free, in effect being misled. We are targeting new media and something like YouTube as in many cases, more people will see something like that than an ad in the newspaper.

On SMSF auditors, we are ensuring people who want to be in this space have the right qualifications. In December 2014, we cancelled the registration of 440 SMSF auditors who did not undertake or pass their competency exam.

Helen Rowell, Executive Board Member, APRA

I want to touch on three areas mentioned in the FSI: governance, retirement income options and how we access the performance of the industry.

On governance, implementation of the Stronger Super reforms has been a priority for APRA, aimed at enhancing the risk management practices of the industry. Our experience on how the super industry is going is only average. Whilst there’s been effort and goodwill, it’s hard to do good risk management if you have not got good governance and culture. It’s the role of the Board to ensure there’s a good culture in the entity, and the trustees on the Board must have a wide range of skills and capabilities. The industry must think about the process of appointment and selection of Board members. The evidence that we need independent directors is our experience in other APRA-regulated industries. Adding independent directors does lift the standard of governance. It adds a lot of value into the way the Board operates.

On retirement income options, there is a limited product set available, partly because of regulations but also due to individuals and their thinking. There’s a focus on the pot of money at retirement rather than what they need after that. Murray will shift the emphasis, including some of the policy initiatives. It concerns us how some APRA-regulated institutions are managing the risk of providing incomes through retirement, so we’re looking at product design and the level of guarantees, which a super fund without any capital cannot provide. There are investment issues to consider because the investment, liquidity and cash requirements around drawdown of income are difficult versus accumulation of a lump sum. Some of the systems, processes and advice models are also different. We are challenging the industry to think about these issues as we head towards pension provision.

On industry performance, the FSI focussed on why costs haven’t come down. My response is that we should not only look at costs, it’s no good delivering the cheapest system in the world if it’s not delivering the best retirement outcomes. We want trustees, when thinking about the scale of their business, to consider a broad range of factors and it’s not just about being the biggest or the cheapest. They need to look at their entire offering.

One last point on complexity. I was staggered recently when we looked at some of the reporting to find that there are over 40,000 investment options offered across the APRA-regulated space. There is no need for this across the super industry, we need to get rid of that complexity.


Graham Hand attended the Conference as a guest of the SMSF Association.


Leave a Comment:



ATO perspective: ‘only’ 2,184 SMSFs have assets over $10 million

What exactly is the ATO’s role in SMSFs?

Chris Bowen, Kevin Davis and regulators at CIFR Conference


Most viewed in recent weeks

10 reasons wealthy homeowners shouldn't receive welfare

The RBA Governor says rising house prices are due to "the design of our taxation and social security systems". The OECD says "the prolonged boom in house prices has inflated the wealth of many pensioners without impacting their pension eligibility." What's your view?

Three all-time best tables for every adviser and investor

It's a remarkable statistic. In any year since 1875, if you had invested in the Australian stock index, turned away and come back eight years later, your average return would be 120% with no negative periods.

The looming excess of housing and why prices will fall

Never stand between Australian households and an uncapped government programme with $3 billion in ‘free money’ to build or renovate their homes. But excess supply is coming with an absence of net migration.

Five stocks that have worked well in our portfolios

Picking macro trends is difficult. What may seem logical and compelling one minute may completely change a few months later. There are better rewards from focussing on identifying the best companies at good prices.

Let's make this clear again ... franking credits are fair

Critics of franking credits are missing the main point. The taxable income of shareholders/taxpayers must also include the company tax previously paid to the ATO before the dividend was distributed. It is fair.

Welcome to Firstlinks Edition 424 with weekend update

Wet streets cause rain. The Gell-Mann Amnesia Effect is a name created by writer Michael Crichton after he realised that everything he read or heard in the media was wrong when he had direct personal knowledge or expertise on the subject. He surmised that everything else is probably wrong as well, and financial markets are no exception.

  • 9 September 2021

Latest Updates

Investment strategies

Joe Hockey on the big investment influences on Australia

Former Treasurer Joe Hockey became Australia's Ambassador to the US and he now runs an office in Washington, giving him a unique perspective on geopolitical issues. They have never been so important for investors.

Investment strategies

The tipping point for investing in decarbonisation

Throughout time, transformative technology has changed the course of human history, but it is easy to be lulled into believing new technology will also transform investment returns. Where's the tipping point?

Exchange traded products

The options to gain equity exposure with less risk

Equity investing pays off over long terms but comes with risks in the short term that many people cannot tolerate, especially retirees preserving capital. There are ways to invest in stocks with little downside.

Exchange traded products

8 ways LIC bonus options can benefit investors

Bonus options issued by Listed Investment Companies (LICs) deliver many advantages but there is a potential dilutionary impact if options are exercised well below the share price. This must be factored in.


Survey responses on pension eligibility for wealthy homeowners

The survey drew a fantastic 2,000 responses with over 1,000 comments and polar opposite views on what is good policy. Do most people believe the home should be in the age pension asset test, and what do they say?

Investment strategies

Three demographic themes shaping investments for the future

Focussing on companies that will benefit from slow moving, long duration and highly predictable demographic trends can help investors predict future opportunities. Three main themes stand out.

Fixed interest

It's not high return/risk equities versus low return/risk bonds

High-yield bonds carry more risk than investment grade but they offer higher income returns. An allocation to high-yield bonds in a portfolio - alongside equities and other bonds – is worth considering.



© 2021 Morningstar, Inc. All rights reserved.

The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.

Website Development by Master Publisher.