Critical academic 'ignorant' of Australia

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The SMSF Professionals’ Association of Australia (SPAA) has dismissed suggestions by a visiting academic there should be a test for SMSF trustees as “elitist” and not about to happen.

Visiting European financial literacy specialist Robert Holzmannan Austrian academic who was a senior adviser in financial literacy to the World Bank from 2009 to 2011 was amazed to discover there is no competence test for people setting up a self-managed super fund in Australia, reported The Australian yesterday.

But SPAA strongly disagrees with the testing idea.

“Holzmann showed a real lack of understanding of the SMSF sector and the importance of it in Australia, and also a lack of understanding generally of super trustees knowledge and skills,” SPAA chief executive Andrea Slattery told Wealth Professional.

SMSF trustees are generally highly-educated professionals who also seek the advice of financial and legal specialists while educating themselves about their trustees duties, she said.

“For anyone to suggest compulsory education – when these people work hard towards understanding how the trusts work – is ignorant.”

Holzmann noted recent statistics in Australia from CEPAR, the ARC Centre for Excellence in Population Ageing Research at the University of NSW, which showed that 27.1 per cent of SMSF trustees only have a trade or diploma qualification while 13.7 per cent have only completed high school.

"If you are not sufficiently equipped with knowledge you are running a serious risk as an SMSF trustee," he said.

He was concerned any major collapse by SMSFs will thrust trustees back on the mercy of local taxpayers as they apply for pensions, reported The Australian.

But Slattery said he overlooked other statistics, such as about 75% of trustees have undergraduate degrees or higher and the trades-people are either small business owners or self-employed.

Slattery was also irked that there are all sorts of trusts but nobody has suggested those trustees should get specialist training.

The last APRA Trustee governance report into the APRA-regulated sector – whose trustees manage billions of dollars of other people’s savings – showed more than 90% of these funds did not require any formal education training or requirements to be a trustee, and 81% did not require any superannuation or investment knowledge to be a trustee.

When the Cooper Review handed down its final report in 2010, it specifically ruled out formal training for SMSF trustees, as the sector had been performing well, said Slattery.

“There has been no evidence since to suggest the situation is any different three years later.”

Setting up a test would be costly and unneeded as the system is working with people seeking actively self-educating, Slattery said.

“Predominantly trustees are professional and they know what they’re talking about – they’re self-employed, small business owners or often work in the finance industry – and that makes them well-educated and thirsty for information.”

SPAA provides education specifically targeted at trustees.

  • Dr Joanne Earl on 22/11/2013 11:43:07 AM

    Our research is in the area of retirement planning and adjustment. We know mastery is one of the best predictors of retirement adjustment and that feeling in control is as important as being in control.

    We aim to help people understand more about themselves so they can make decisions about the level of control they wish to exert. The aim is to empower people not regulate them.

    We can’t just overlook the impact of an aging population and we know age alone is an imperfect yardstick for capability. Recently the Australian Law Reform Commission (ALRC) reviewed legal barriers for older people seeking to remain in productive work. Submissions pointed out the unreliability of age in the light of better ways of assessment of personal capabilities.
    The ALRC had a particular focus on rights – including the right to participate and the right to make choices and decisions. For many individuals, having a SMSF reflects a need for control, self-management and autonomy. Effective self management requires a reasonable level of financial literacy but also an ability to integrate a range of related financial issues and maintain an ongoing response. Providing people with vital information about their capacity to make decisions extends their ability to take a view on managing their future.

    We are currently investigating the relationship over time between financial literacy, financial decision-making and cognitive functioning. Questions needing answers include:
    • What happens to financial literacy over time? Does it decline? Stay the same? Improve?
    • What is the relationship of financial literacy to other cognitive skills? For example, if you start to forget things, does it affect your financial decision making or is there a “wisdom well” of financial knowledge that persists in spite of other skill declining?
    • What happens if you think there’s a decline in your cognitive skills – but there isn’t really? Does it affect your confidence? Do you avoid making decisions? Does the perceived decline discourage going out or trying new things?
    More SMSF owners (ideally over age 50) are needed to contribute to this important study and can email for more information. By contributing they will also find out more about themselves as a payback!

  • Matthew Ross on 21/11/2013 12:33:17 PM

    I just had a second appointment with new clients who have come to me with an SMSF.

    They know little about what they can and can't do with it.

    I asked them (they are aged 55 and 54) that if they had to complete a compulsory course to remain as a trustee of an SMSF would they:

    a) complete the course happily
    b) shut down the SMSF

    They said a) with big enthusiasm. People want education, they want to be empowered with information.

    Unfortunately there are some people who can't be bothered educating others. They feel that it will reduce the need for them as advisers, reduce the value they provide; remove some of the complexity that they charge for.

    Ignoring people's need and want for education is very ignorant, lazy and self-serving. We need more discussion about this, though understand that certain people have a vested interest in shutting it down.

    But we as financial advisers have to put the clients interest first....if they want education, let's give it to them.

  • John Schofield on 20/11/2013 4:35:48 PM

    I agree with Robert Holzmann. If members/trustees cannot invest enough time to get even a Certificate 1 in Financial Planning then:
    (1) How can we call them professional or skilled? They are not educated in the right subjects. So what if they are highly educated professionals in the wrong subjects?
    (2) How can they have the time to manage their SMSF?
    The consequence is higher Old Age Pensions paid out to people who have already benefited from the Tax concessions in the accumulation phase.

  • Matthew Ross on 20/11/2013 12:49:17 PM

    I agree with you Peter. Holzmann has some great points.

    If you're going to "self-manage" your superannuation fund...why do you need a financial adviser or accountant?

    I believe that there are a lot of trustees out there that were recommended to set up an SMSF by their adviser; not the other way around (i.e. they didn't set up an SMSF and then seek advice).

    Just because someone has a degree in arts or science doesn't mean they understand risk, asset allocation or strategies.

    Where are the stats on the % of SMSF that is in cash, term deposits and Aussies shares?

    So trustees are putting money in term deposits rather than high quality bonds...

    All Aussie shares, no diversification into Global shares, emerging markets or listed property.

    Buying off the plan property within their SMSF ...(the stupidity of this decision is multiplied by 2 or 3 when the adviser is paid a commission from the property developer).

    Three examples of common actions in SMSF that other advisers scratch their head at and say "do they really know what they are doing?"

    “For anyone to suggest compulsory education – when these people work hard towards understanding how the trusts work – is ignorant.”

    If viewed another way...

    Anyone who dismisses some form of compulsory/structured education and ongoing education as an option worth discussion and consideration – could also be classified as ignorant.

  • Peter on 20/11/2013 10:13:33 AM

    In many cases Holzmann is right & Slattery is wrong.

    I am a Financial Adviser, too often I have to unravel the problems trustees & their Accountants ( usually not Spaa Members )cause.

  • jp on 20/11/2013 10:12:51 AM

    "If you are not sufficiently equipped with knowledge you are running a serious risk as an SMSF trustee," he said.

    That's why they seek advice from professionals in the area of SMSF, investment strategies etc.

    I mean, if I want to build an extension on my family home, I seek advice from an architect, engineer, builder, tradies and so on. I don't enrol in the building, bricklaying and carpentry course at my local TAFE.

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