SMSF Series #1 – Shelley Banton – Transcript

SUMMARY KEYWORDS

trustees, investment strategy, fund, smsf, audit, clients, assets, auditor, crypto, valuation, advisor, guess, accountants, fraser, industry, difficult, terms, property, unlisted, issue

SPEAKERS

Emily Blanch, Shelley Banton, Fraser Jack

Fraser Jack 

Welcome to the x y advisor podcast, a global community of financial advisors sharing and learning with one another to drive the positive evolution of financial advice. To get involved, go to x y advisor.com. Or simply download the x y advisor. This series is brought to you by super galleon, a specialists self managed super fund administrator, known for their client centric approach to their full service solution. If you need SMSF support or CPD, check out the Knowledge Center or sign up for Super Guardian updates at Super guardian.com.au Welcome back to the Expert Advisor podcast. I’m Fraser Jack. And today we’re talking all things are in it around self managed Superfund, and specifically today where we’re deep diving into the concept of what happens during an audit. What are all of the bits and pieces around auditing the pain points and things that go right and the things that go wrong? And so I’m joined today by an amazing auditor Shelley Denton, welcome.

Shelley Banton 

Thank you, Fraser. Jack, good morning, or good afternoon,

Fraser Jack 

everybody. fantastic to have you along. Now. Now, do you want to give the listeners a quick overview of you and the business that you’re working with? At the

Shelley Banton 

moment? Yes, I’m head of education at ASF audit some, we’re actually one of the largest auditors, SMSF auditors in Australia who’s totally independent. So we just work with SMSF audits, we don’t do any other types of audit or perform any other sort of work for any other clients. So we’re able to, you know, put our hands on my hat and say that, yes, we’re actually providing that independent solution, which is really important at the moment, especially for accountants, where there’s been a lot of discussion around that he provides dates 110 standard, which is then, you know, provide a lot of, I guess, discussion and, and really, an upstream changes to our estimates of industry. And as of those two July of this year, in terms of how accountants are working with their clients, and financial plans to for that matter. So yeah, it’s an interesting time, you know, in our industry, fantastic. And

Fraser Jack 

you mentioned the change word, there’s plenty of that going on, and all the different parts of in and around so that your head of education, does that mean, you’re educating the auditor as I work with you, or the accountants or advisers, how’s it work?

Shelley Banton 

I’m pretty much putting out education pieces to the industry, obviously, internally and also to our clients as well. But the more that we can get out information about making sure you know, compliance in SMSF, audit initiatives are there from day one, it will make our job easier at the end of the day. And it also makes our accounting and financial planning clients lives easier as well. So it’s all about making sure that that audit process goes smoothly and as easily as possible without too many queries. And if we can, you know, get that message out, that’s going to make everybody’s lives easier, and also be able to make sure that when all that work comes in at the end of the year, that we all meet our lodgement deadlines.

Fraser Jack 

Yeah, fantastic. And I like the way you said making lives easier. That’s certainly something that we all need, we all need. And tell us about your background. How did you get into this into this role?

Shelley Banton 

Oh, okay. I’m very, sort of a different place. I guess I’ve had a bit of a varied background. I’ve what worked for corporates work for Citibank comm bank, perpetual funds management. So I’ve sort of come from that era, and then sort of moved into audit through doing work or managing workers compensation wage audit business, in Newcastle, actually, where I currently live. And then we were looking at how that was how that industry was moving, and saw other opportunities in SMSF audit, and then decided to look into that. And about 2006, I opened business super auditors that focused on SMSF audit. We were the first audit firm in Australia to provide like a client portal for our clients. And we had our streamlined online portal that was secure that enable clients to guess get in and upload documents easily and quickly, which was one of the, which doesn’t sound like it’s so amazing now, but back then it was, you know, first in the industry, which is really exciting. And then in 2017. we merge with ASF audits, and I’ve been with their team ever since. And I’m now head of education, as I said in terms of trying to get the message out there and getting funds compliance. So it makes everybody’s lives easier to audit.

Fraser Jack 

Fantastic. I love a good, early adoption to technology story, I think it’s, it’s right up right out there, one of the things that I enjoy, you know, like seeing companies, you know, push themselves and go outside the box and really just think about their clients from that point of view and go, well, what’s the best thing and the easiest way of my client to get this information back, which is kind of still a problem that exists today, in many audits, I guess, clients getting information back.

Shelley Banton 

Yeah, and locking, you’re absolutely right there. And what we’ve done at ISF audits is we’ve actually developed a system whereby it’s a one click audit system. So if you’re using the administration software, one of the three big ones bgl, class, and super, super Central, you’re able then to go into that software, basically click a button, because we’ve already set up the API’s between us out our system and, and that software, and basically just upload that audit straight to us. So it makes it really easier. And we’re trying to get to that concept of one click and understanding how the data feeds work in those particular platforms. And also then using that data feed is a source of truth. So the amount of information that within asking our clients for an audit becomes significantly less as well.

Fraser Jack 

Yeah, that sounds pretty good. One click boarded process sounds like a dream, actually.

Shelley Banton 

Well, dreams come true. And we continue to refine it. So that’s very exciting.

Fraser Jack 

Fantastic. And you mentioned, you mentioned the word your clients. But also earlier on, you sort of mentioned, the advisors, and the plan is and the accountants being your client. It’s a tricky one, isn’t it? Because at the end of the day, your client is the trustee, which is often the client plus also the, you know, the advisor and the planner, and the the accountant. They’re all sort of that realm of clients to let us know how that works.

Shelley Banton 

Sure, well, I mean, obviously, the trustee as trustee of their super fund has the, you know, choice in who they have their funds audited by, but in most cases, they’ve got a relationship with their accountant or financial planner. And it’s much easier for them to obviously have the accountant coordinate the audit of their fund. And I guess that’s where that relationship comes in, you know, through to SMSF audit firms like ourselves, because we’re able to talk to the accountants in our in our own language, which makes it easier because we get the responses quite easily without having to talk to the to the trustees. And there are very, there’s a lot of switched on trustees out there. But the majority of Trustees wouldn’t understand the types of questions we will be asking it ordered. And also understand the type of information we would be requiring to make sure that we can tick off that particular aspect.

Fraser Jack 

Yes, payments. It’s very much a three way marketplace, I guess, isn’t it from your point of view, and you really have to, I guess communication becomes the you know, the vital key for that?

Shelley Banton 

Well, that’s true. And we constant, we have a client manager who is appointed to each and every accountant or financial planner. And that becomes their point of contact on also another point of contact to answer any other quality questions that you have during the course of the year. And that’s just part of our service anyway. So if you meet up and you have an issue with the fund, you know, we don’t necessarily need to know all of the details about the fund, we can just have a general conversation about an issue that might be happening so that we’re able then to provide that assistance during the year so that when it gets to audit, it isn’t the horse has already bolted, it isn’t an issue. And it doesn’t become a compliance problem at the end of the day. So I guess they’re always going to be those cases where you know, we can’t do anything cause that has happened. But what we can then do is work with the client to make sure that there’s a rectification process put in place so that the ATM understands and, and can see that the trustees tried to make amends, and making sure that their fan returns the path of compliance.

Fraser Jack 

It was really interesting, isn’t it? And I think there’s probably been a common problem over many years with regards to a delay in getting forms back and getting information back and then causing, you know, going over a deadline, I think, Well, you know, the deadlines. You’re constantly keeping an eye on the deadlines. But is that sort of something that you’ve seen an improvement on with with the end client or the trustee and improving on those delays? Or is that is that something that’s still a problem?

Shelley Banton 

Okay, I think with the way that we work with our clients, in particular where and we’ve just discussed previously that one click audit function that allows us to obviously ask for less documentation and audit. Now there’s always going to be information that we do require such as a statutory files we need, you know, specific information about related party transactions, for example, or unlisted entities which is always difficult to provide that information especially The accountant who we’re dealing with, hasn’t actually undertaken the preparation of the financial statements for that particular unlisted entity. So when you’re talking about us dealing with the accountants, and then the accountants having to deal with third parties to try and get that documentation through to us, it does become a little bit more difficult and the time does get, you know, stretched out a little bit. But at the end of the day, we can only work in the framework that we have. And there are parameters from a compliance perspective, which provides the onus on the trustees to provide us with information within 14 days. So the surgeon 35, seat to assist, which says, yep, if the trustee is requested documentation by the auditor, they have to provide that within that 14 day time frame. If they don’t, well, then it’s an ACR. But the question is, then Fraser, who is that point of contact? If we’re providing that information to the accountants or the financial planners? how then do we know at what point they’re then passing that information on to the trustees, so we do have to, you know, work together and have a great relationship and make sure that continues so that we can keep that ball rolling, and make sure that we also meet our professional obligations at the end of the day?

Fraser Jack 

Yeah, exactly. And your professional obligations are such ways, you know, order is starting to getting dragged into determinations. And in cases that they are sort of, there’s been a couple of cases where legislations where orders are now being liable.

Shelley Banton 

There’s two cases in particular, back in 2018, whether to audit or litigation cases where between the two of those cases there will be awarded, I think it was in excess of $2 million, because the auditors were held liable for the losses in those funds. And the reason for that is that they didn’t do their job properly. So they had a lack of audit evidence on file, which didn’t confirm or verify the ownership of fairly high risky assets within though both of those funds are unlisted entities, they were loans to companies, and so on. So it was a case of the auditor really dropping the ball in a lot of cases. And I guess this also goes to the point of some of those auditors who are out there who are currently doing complicated audit, remember, very low cost? How do you actually undertake the requirements of your professional obligations? And do that for $200? or less? The answer is you simply can’t. And then you’re going to cut corners. And potentially, you’re going to end up in litigation case. And you’re going to appear on the front pages of, you know, SMSF, adviser and whatnot, in terms of being, you know, hold across the industry as an example. So, and I don’t think it’s the last two places that we’ve seen these things just take a lot of time to gel. And interestingly enough, it’s not only going to be from the trustees that we’re seeing this litigation happen, it’s also going to be from the beneficiaries. Because if the beneficiaries then inherit what they consider, you know, kids inherit what they consider to be, you know, a dud fund, they’re then going to be looking for ways in which to work out, hey, how did this happen? Did everything go according to how it was supposed to, they’re going to, you know, go and look and engage your high profile SMSF lawyer is then going to start right from the very first trust deed, to make sure that everything in that fund from day one had been, you know, had been audited correctly. And then all of those professionals involved with the administration and the operation of that fund, including the notwithstanding the trustees environment, have done their jobs wrong, right. And when they haven’t, obviously, that’s when we’re going to have litigation cases.

Fraser Jack 

This is the concept I call the compounding liability conversation around the the concept that that you get paid for to do an audit this year. And, you know, advisors get paid for the advice and accountants charge fees during this year, but the liability continued on year after year. And so if you’ve got, you know, if you’re ordering 100 cases a year, then all of a sudden that that compounds over time.

Shelley Banton 

Oh, look, it certainly does. And while these cases were, you know, found in 2018, and they, they were actually audits that related back to 2004 to 2007 2008. audit, so we can see that there’s certainly a time lag and it just proves exactly what she said that that compounding effect of litigation just will continue and and as we’re moving into a more litigious, you know, area, I think just taking on board more of that from overseas, especially the examples we see from the US, Australia is going to go down that path and we’re going to see that with SMSF professionals as well. And the reason why the auditor’s were certainly highlighted in these two cases is that all of the professionals that were along the way had either left The industry were declared bankrupt or were disqualified or didn’t no longer had their businesses, you know, continuing. So it was the auditor who was listed any holding the bag.

Fraser Jack 

Yeah, that’s really interesting with the amount of advisors to planning on leaving the the profession over the next sort of few years is this, you know, report on up to 50% of the workforce or the advisor forces is looking to leave. So that’s going to be really interesting if those businesses are sold on to you know, that liability continues. If those businesses are, you know, shut down, it could, it could certainly put stress on the system.

Shelley Banton 

Yeah. And certainly to if you’re the, you know, the advisor in charge, obviously, of your clients, and you’re the one forging that relationship with the auditor, if you’re recommended that your clients use an auditor, who is cutting corners, who is just rubber stamping, that obviously becomes a liability for you as well. Because no, like, it’s the old saying is you always get what you paid for. So

Fraser Jack 

yes, and I imagine in in a business where that’s happening, it’s not just happening to one client, it’s happening to a lot of them. You mentioned related parties a couple of times and also unlisted entities. And, you know, when we talk about some of the things that can really go wrong inside some of the orders that you see, they sort of the top, the top a couple of things apart, apart from, you know, dates, missing dates, so that they the things that you see the most and that you can have problems with.

Shelley Banton 

Yeah, in terms of those sort of more complicated assets, for sure. I mean, the types of contraventions that are most regularly reported to the ATL are those of in house assets and line two members. So when we’re looking at loans to members on him, it’s just basically a situation where, you know, the trustees looking at their cash cow, which is the SMSF. And they’ve got issues outside with businesses outside that maybe having, you know, cash issues or what have you. And there’s this SMSF cash cow sitting there. So it’s very easy just to dip in and take what you need to prop up that business. With the idea that I’ll pay it back real quick. And you know, it might be a blip. But it won’t be a huge issue. But obviously, sometimes as we know, these things don’t get rectified. And that cash just keeps dwindling down. And it does become an issue. So it does account for about 20% of all contraventions that are reported to the ICR AGI. And within house assets. Obviously, there’s issues where trustees are either leasing or investing in or loaning money with those related parties, which makes those assets then in house assets of an SMSF. And while you can have up to 5% of in house assets, of total estimates of assets as renacer assets in a year, once that exceeds that the trustees are then required to prepare a plan to put in place to reduce that in house asset limit to below 5% by the following year. And when you’ve got issues with related unit trusts, for example, where those were those entities, and those investments are typically very material assets within the fund, it’s very difficult for them to, you know, obviously, sell units in that related unit trust to an unrelated party, or it certainly there’s a property in that related unit trust, it’s, it’s difficult to just move that. So it becomes at the end of the day of fire sale, to be able to make sure that that fund remains complying. Because at the end of the day, you’re going to lose your tax concessions. And you’re going to be taxed at the highest marginal tax rates. So and that’s regardless of whether you’re in pension mode or not. So you know, you are it is incumbent on the trustees to make sure that that they are aware of their duties and obligations and responsibilities of being the trustee at all time, regardless of what the professionals they use. So, you know, it’s best that trustees do take an interest in their self managed super fund and make sure that while they may not understand all the intricacies intricacies of how things are supposed to operate, to at least be on top of it and at least have a general understanding so that they can actually direct traffic with their in line with the relationship they have with their professional at the end of the day.

Fraser Jack 

Yeah, I was just going to ask you that exact thing. You mentioned the plan to rectify but the proactive approach for planners and the tips that they can actually implement before any of this happens on a regular basis when they’re doing their reviews. Really, that’s just around looking at those assets and having a plan in place and a checklist.

Shelley Banton 

Well, it is and it’s also about having a good relationship with your auditor, who you can actually talk to on a regular basis if the sorts of issues come up so that you’re actually being proactive, as you said and not reactive. And of course, you know, at the end sometimes trustees will just go out and do something without Asking for your for your help or advice, you can’t do too much about that. But then it’s a case of what can we do to make sure that we get the fund back on on track. And sometimes with these particular issues, they can be so difficult that the best solution for them, in fact, is to go down the path of putting in a voluntary disclosure to the Hto, which sounds a little bit, you know, contradictory in terms of why should a trustee fall on the sword. But at the end of the day, you’re going to get a better outcome for your client as the advisor, if you do go down that path and undertake that Voluntary Disclosure with the agio, rather than letting the auditor submit an ACR on up for your client at the end of the day. So we will obviously get that information from the ATL from yourself in terms of the outcome of that Voluntary Disclosure service. But we will implement that into our ICR. And we will still be required to lodge but at least the ATF will know that there’s been an outcome. And certainly, there’s been going to be probably a better outcome if you go down and talk to the ATF. And you know, get get that sorted as quick as you can, rather than letting the auditor have to lodge that at ACR for you. Yeah,

Fraser Jack 

that makes sense. Obviously, the you know, that’s the that’s the purpose of having an audit so that it can be launched with the with the idea. Now, just while we’re quickly going back to the unlisted unlisted entity or unlisted assets, essentially, there’s a lot going on in the space. And you did mention that, yes, sometimes trustees make decisions on the spur of the moment, and they don’t consult their professionals. And then all of a sudden, it’s about, you know, creating that scenario where we actually have to go back and change something. cryptocurrency cryptocurrency is surely something that you would have seen creeping into into portfolios from time to time and then you know, that maybe, maybe they’re not, generally they’re not recommended by the the advisor, but they creeping in anyway, how is this working with the investment strategy?

Shelley Banton 

Well, cryptocurrency is a new asset class that we’re seeing coming through. It basically, is enabling, you know, decentralized applications to work on the internet. So it’s got the blockchain behind it. It’s very sophisticated technology that lives behind these cryptocurrency assets. But at the end of the day, the reports that we’re getting at audit, are very unsophisticated. So there’s a little bit of a disconnect between what is happening behind the scenes and what we are finding the documentation we’re getting, which makes it difficult for us to be able to rely on that a sufficient appropriate audit evidence at audit time. And there’s a lot of ways I guess, in which trustees need to be aware of that they that they’re not going to fall foul of the compliance legislation in terms of making sure that they meet the rules and regulations at all times. So the types of things they can’t undertake is, you know, related party transactions with cryptocurrency so they can’t lend crypto to a related party or to remember, which is a bridge, they can’t accept crypto into the fund through and in space, the contribution that’s a bridge, they can’t lend crypto to, as we said, to provide financial assistance to a member that’s going to be a bridge, the fund can’t borrow money to buy crypto, that’s a breach, you can’t give a charge over the assets of the fund. So all of these sort of sophisticated financial products that we seen, which are unregulated, which have been developed through crypto can’t be undertaken by within within a certain sort of narrative. And because the majority of them will require a charge to be given over the assets of the fund. So we’re seeing a lot of movement within this area. We’re seeing clients take out crypto, obviously, we’re seeing Bitcoin at record levels at the moment, and we’re seeing other cryptocurrencies which are also picking given, you know, certain tweets by celebrities and whatnot. So there’s not a real lot of meat in the sandwich behind the acid backing of these particular cryptocurrencies. Having said that, they are seemingly becoming more mainstream, you’re seeing Microsoft starting to accept crypto as payment. We’re seeing paper or we’re seeing banks in in America taking crypto. We saw Ilan take Bitcoin is now not taking Bitcoin. So all of these sorts of things are playing into the price. And also, I guess the fear of missing out from trustees in terms of investing into this asset class, when we’ve just got such low interest rate. environment that we’re going to have for quite some time within Australia.

Fraser Jack 

Yes, I think that’s definitely one of the reasons why it’s become popular, obviously, obviously, its popularity goes up and down, depending on tweets and information and news reports, and, and trading on what people say, which is very interesting, which is how we end up in these problems in the first place. But look, you know, I think some of these big companies actually tend to see, you know, cash is a bit of a liability for actually going backwards. So it’s, it’s interesting where this is gonna go. But I’m taking I take it that, you know, the one click audit process, it’s very difficult to get crypto into that one click audit process at the moment.

Shelley Banton 

Well, it’s really that’s really not up to us at the end of the day, that will be up to those, I guess, those administrators or those platforms that are that are trading or those exchanges that are trading crypto for for their particular clients, and then providing some sort of data feed or some sort of reporting mechanism into those administration platforms that we then have API’s with, which already had things coming in from data from banks, financial institutions, rep counts, managed funds, brokers, so on so forth, it’s just a met another data feed that will come into that administration platform, which we will then access. And I guess, then what our job will be at the end of the day is to look at those particular data, things that are coming in from wherever whichever crypto sources, and making sure that we can verify them, and use them as a source of truth. Because if we can’t do that, well, then we’re back to square one in terms of asking for the reports. So we already do that with a lot of banks and financial institutions who are feeding information for their clients into those administration platforms. And we’ve undertaken a process over a series of years actually, for some of these, where we’ve been able to verify several 100 of these things that are coming in. So this is where we get to this one click environment, because we’re asking for less reports at the end of the day, because we can rely on those data feeds as a source of truth. Now whether we get to a point where cryptocurrency is coming into those platforms, and we can do the same for those no predictions there, Fraser. And whether that will ever happen? I don’t know. Because all of these exchanges and other platforms that are dealing in crypto, they’re all unaudited. So from an audit perspective, we can’t rely on those reports, we have to go in and do our homework online through them, you know, like everybody else,

Fraser Jack 

which is an incredibly difficult job. And I think with as you mentioned, so many different trading platforms around it’s going to be very difficult for those aggregators to try and get the correct data in. And then, as you said, verify the source of truth to be able to pass it on to use interesting watch this space. I’m not sure is it going to be solved anytime soon, but hopefully, we can get somewhere with it. Now, obviously, we were talking about sort of an alternative asset in the in the investment strategy. How is how do you see what people are basically buying crypto and then trying to add it to their investment strategy?

Shelley Banton 

Look that that happens all the time, with a lot of assets. In fact, we see, we traditionally we have seen very poor quality investment strategies, which were just basically a regurgitation of the legislation, which were just cookie cutter template approach. But the ATR actually wrote to trustees two years ago now and mentioned that, you know, if you’re an a target, specifically, trustees who had lrba is with 90% of their assets in in property that was funded by an lrba. And they basically said, Have you considered diversification aspect of investing in this one asset class within your investment strategy? I think there was a lot of discussion about that in the industry. And, and, and even though there was some negative feedback on it, I think the outcome of was probably inadvertently one of the best campaigns we ever run, because we’re still talking about investment strategies today. And what is right and what is not right, because previously, it was just a set and forget document, which really only then got looked at at audit time. And it was only the auditor, who basically said, Well, if you’ve got asset allocations in your investment strategy, they’re outside the ranges of what is actually in your fund. When is that going to come back into line? Now, there’s no requirement under the legislation to have asset allocations within your investment strategy, you can actually have that in your statement advice, you can just list the assets that you’re going to have in your investment strategy. But what you do need to do is to make sure that all of the assets that you’ve got within your fund is there for maximizing the retire benefits of the members and being able to articulate that How that is. So you’ve got to look at those definition elements of reg 409, which talks about investment strategy and writer, an investment strategy that addresses risk return liquidity, cash flow, the insurance needs of the members. So all of these sorts of things in relation to the assets that you’ve invested needs to come together to make sure that the trustee is investing for the retirement benefits of the members. And they’re not making investment decisions, which is going to benefit them today. They’re not making medic benefit investment decisions, which is going to benefit their family or friends. It’s it’s information that they can take to provide them with a sound strategy to invest for their members at the end of the day.

Fraser Jack 

Yeah, and the thing that can be a bit more with the investment strategy become a bit more of a focus for the trustees and then reviewing the more really,

Shelley Banton 

look, it is within the industry, a lot of accountants and advisors are certainly revisiting their investment strategies, because auditors are looking at them a lot more closely as well. So previously, if you had an investment strategy, and really just look for those big tick words like risk return diversification, liquidity, and you go, yeah, okay, that seems pretty reasonable. But now we’re wanting more meat in the sandwich, we’re wanting to understand and have the trustees articulate how this investment that they’re going into such as cryptocurrency is going to provide the retirement benefits, maximize, maximize the retirement benefits for members at the end of the day, because that’s what it’s about, and being able to put into effect your investment strategy. So saying, why you’re doing it, how it’s going to help how it’s going to help you make your pension payments at the end of the year, or the time that you retire. So if you have a fairly big, lumpy asset, such as property, and you’re getting a certain rating, and then that’s 90% of your fund, if you have a situation like COVID, and you’re getting regular pension payments in, how is that going to work in the cash flows position, especially when we’ve had all of the deferral of rent through COVID that we’ve just seen. So obviously, you need to think there’s things that you can’t foresee, but you need to think about the types of things in terms of how that’s going to impact your ability to invest, and how that’s going to impact your members at the end of the day.

Fraser Jack 

Yeah, that’s really interesting. You know, it’s very difficult to foresee something, but we’ve now seen it, right. It’s, it’s no longer an unknown. And so it’s certainly one of those things, but I’d be interesting to save, if, if, you know, investment strategies, change that like that, now that they can see them. When it comes to investment strategies, I think one of the things is people tend to get into is this cookie cutter type scenario where they’ve created one and let’s just roll that out and make it flexible and easy and not read into too much detail. The AC went to that.

Shelley Banton 

Look that that happens within the industry, I think that probably the better better advisors understand what their clients have. And if they’re going to take that approach, they may then have a an investment strategy, which encompasses pretty much everything that their clients are going to have whether or not they invest in particular clients invest in that or not, that may well be their approach. I think that the investment strategies are getting more detailed, as I said, as a result of the Oto Litz letter campaign a couple of years ago. And I think that’s been a good thing. Because what it’s done is it’s force trustees, and also professionals within the industry, to look at the investment strategy with a different set of eyes and be able to provide, I guess, a different service to their clients as well, in terms of sitting them down and asking them questions about their expectations about what they want to achieve in their retirement, what they’re wanting what, what they wanting to do along the way to get there. And obviously that needs to be put into the statement of advice. But that is also a very separate document to an investment strategy. So you know, they need to be kept separate at all times. And and the questions are going to be different for each of those documents. But there’s certainly questions that you need to talk to your clients about, for example, when they are entering an LLB AI, for example. And you typically got one trustee was one trustee, one member who is more dominant than the other, who has probably gone down this path is probably earning the most of money and putting most contributions in what happens if that member dies, what happens if they divorce? We never want to think about the worst case scenario but these are the sorts of questions that you can actually talk to your clients about and elfi Slee think about how that will work and put it into investment strategy. Of course, there’ll be a lot more detail in your statement of advice. But there’s no reason that that those sorts of scenarios and those sort of situations can’t be thought about and discussed within your investment strategy as well.

Fraser Jack 

You know, obviously, there is a bit of an overlap between what’s in your investment strategy, and then what happens in the USA. But they are you out? You’re absolutely right. They’re two very separate documents and need to be stand alone almost, don’t they?

Shelley Banton 

Yes. Now, definitely. We’ve been given statement of advice before, which has said this is your investment strategy. And trying to, you know, work your way through 100 plus pages of an IT statement, advise trying to pick out those elements that you need to take off for an investment strategy just becomes very, very difficult and time consuming. So yeah, they definitely need to be two separate documents.

Fraser Jack 

Yep. Fantastic. Now, we did we did touch on lrB. Sorry, lrba. And property in South Brunswick fans, obviously, this has been something over the over the many years, it has been a very big part of the the whole self managed Superfund industry. Then there was as you mentioned, some some some ATF sort of stepped up and and made some comments and talked to trustees. How’s that gone? And how do you see going over the next sort of few years with regards to property?

Shelley Banton 

Oh, look, the Australians have a love affair with property. So I don’t think that that’s going to stop. I mean, depending on where you live at the moment property prices have gone through the roof, they’ve certainly generally recovered better than what they had before COVID. I’m here in Newcastle and property is is an all time high, interestingly, to rental here is very, very sought after. And there’s a lot of demand for that, which is driving prices up etc. Having said that, my son lives in Kensington in New South Wales uni. And you can get a flat there for, you know, a quarter or not quarter, but, you know, significant discount to what you could be for COVID. Because there’s a lot of vacant blocks aquasafe students have all moved out. So you know, it depends. And it depends, really, I think, from suburb to suburb as to how the property’s got markets going to fare moving forward. That’s not my area of specialty. From our point of view, we need to have evidence of market value for property to be able to obviously sign off compliance with reg 8.0. To be and that can be difficult that at the moment, certainly during COVID, when lockdown was happening, it’s difficult trying to get a real estate agent to come and give you a curbside valuation of your property. The ATF has interestingly now come out and said that if you do get a curbside valuation for your property, you also have to have that curbside valuation list the comparable properties that that real estate agent has used to come up with their valuation. So typically, we would just see a one pager that just sent been around his his surprise, it’s somewhere between 1.1 $1.3 million. So you take 1.2, and you’d be happy. Now we need to see that real estate agent list, whatever comparable properties that were sold in that area, which was used to come up with that valuation. So it’s also about getting that information out to be able to look at the methodology that was used to be able to come up with that. And we need to be able to sign off on that and make sure that that’s in place. And we can understand that. And we’re looking at those source documents at the end of the day. So there’s a there’s a change in terms of what we’re looking at in terms of audit, and that comes from the ATF from the regulator. And that changes every year as well. So for example, if we’re looking at an online valuation, which the ITA says that we can use, some of those standard deviations from those online valuations can be quite significant. So if you’ve got one that says the property values between 408 100,000 you can’t take 600,000 is the midpoint go Yeah, I’m happy with that. It’s it’s that it that’s deviation is more than 10%. And therefore, it’s not acceptable. We will also need to make sure that that report has a list of comparable properties within the area so that we can understand that that valuation range is you know, reasonable and has been based on a sound methodology.

Fraser Jack 

You This is really interesting because I’m often it’s, you know, real estate agents, I guess. It’s not a necessarily, you know, a valuation where it’s done by a valuer for example, and I think I’m probably commercial property is one of these areas that is very difficult to enter run up, but I was just gonna mention or ask around the idea of the real estate valuation hell one is there is when does it become a property value that you need to get involved?

Shelley Banton 

Well, I guess when the property is complex, or you just can’t get it back valuation undertaken by a real estate, licensed real estate agent, there is a ability for the trustees themselves to do a valuation. But once again, they need to do their homework. And they need to provide us with a list of at least three comparable properties that are being sold within that area. So that we understand that the valuation that they’ve come up with is, you know, reasonable, and based on a sound methodology. So without that, you know, sometimes you just get a minute that says the trustees have reviewed the sales in the area, and the valuation is $500,000 not acceptable at audit, we need to have that source documentation to show us exactly how you came up with that valuation, we just can’t take it on face value, we need to make sure that we’ve got also got that on audit file as well, because lack of market evaluation evidence on border files is one of the main reasons why the ATR is referring SMSF audit is to asik for disciplinary reasons. So it’s become a very big issue. And market valuation is used to make sure that obviously pensions are being paid correctly, make sure that the cost of unlisted entities within a Superfund is listed at market value, because that’s a way in which you can get around those in house asset 5% limit, and making sure and underwrite reg 8.0, to be now that all of those assets are valued at market value. So there’s a few reasons there and some reasons why that valuation or that regulation came in as a reportable valuation back in 2014.

Fraser Jack 

Now, as I think about the trends in self managed super funds have obviously there was a, you know, there’s been huge spikes in popularity. And there’s also been some moments where, you know, I guess a lot of people were winding up their funds in, I guess, a couple of parts of this. One is I’m interested in saying, you know, when it comes to winding up funds, and those sorts of things, what what are you really, what are your What are your tips around that for planners, and how they really approach there? And secondly, I was going to ask you really around the idea of where, you know, where is the trend at the moment?

Shelley Banton 

Look, I think that there’s always a slight fluctuation with wind ups in terms of, you know, it goes sort of either side, but pretty much it’s, you know, some whatever wind ups we’re seeing, we’re seeing your establishment as well. And that’s where I’m saying it’s a fairly flat sort of a scenario, from that point of view, even when we’re seeing small spikes in, in, in wind ups, it’s really then a timing issue as well, which is sort of rectified the following year from the A to stats. So the wind ups, you know, while we’re seeing a little bit of fluctuation pretty well, you know, have been steady for the last few years. I think, in terms of the information that’s required an audit, obviously, we need to have financial statements that show that there’s no assets in the fund, and those member statements are zero, there may be a few assets, which is offset by future payments out to members, which might be things like accrued expenses, such as accounting fees, or fees and things like that. But we need to make sure that there’s zero assets in the in the fund at the end of the day, which is shown on the member statements and therefore referred to in the financial statements as well. One of the things which is really difficult is obviously where there’s been a request to wind up obviously, before 30th of June, simply because once it rolls into that other year, you’re up for another set of fees. And you’ve got a situation where the request has been made. So early June, but it doesn’t take effect until after the end of the financial year. Now, it depends is the answer to what you’re going to ask, which is, is that okay, or not? I guess? And the answer is, it depends. Because it depends on when it happens, like if it’s if it during 30 was on a weekend, and we could see that that request had been made on a timely basis. But for all other reasons, apart from, you know, banks, and then archaic, you know, systems and then the ability to process things on time, for various reasons, which we don’t have enough time to talk about today, obviously, Fraser, but it may well just, you know, spill over into that first day or two of the following financial year, we can probably understand how that happens. But if you’ve got a term deposit that’s still sitting there in the 30th of August, the following financial year, and they tried to wind up the fund on the 30th of June, that’s probably a little bit of a disconnect, which we’re sort of going you know what, that’s not actually going to work. The fund is not wound up, we can’t sign off that there’s zero assets in the fund at 32 June, it simply can’t happen. So it’s we look at these sorts of things and make sure that everything’s come out. You don’t necessarily have to wind up the bank account simply because there may be some other dividends or they may be some other things which are coming into the fund. So that’s not mission critical. You can do that if you like. But we’re not looking for that as an audit, particularly, obviously, we want to make sure that the wind up minutes has been put in place, we want to make sure that any rollovers money’s going out of the fund has been paid appropriately to the correct party. So it may well be a roll over to an AP refund, we obviously want to make sure that that’s gone through and we get that documentation. If there’s been pension payments, we want to make sure that that’s happened correctly. So we just want to make sure that all of those T’s across those dyes eyes are dotted, to make sure that the funds being wound up. The tax return says yes, this is the funds being wound up the date it’s being wound up. So all of these sorts of little things, we look at an audit and make sure that you know it is compliant. And even if there’s a breach in that particular year, even if the fund has been bound up, it’s still under where we’re still required to lodge that ACR if the if, if that’s necessary with the agio. And we don’t have any discretion about that either. But we will note in that ACR that the fund has wound up.

Fraser Jack 

Fair enough. And now obviously, you’re in the area of giving advice on this. But you know, corporate trustees versus personal trustees, are you seeing any issues around that, that we really need to be aware of,

Shelley Banton 

there’s certainly been a swing towards establishing corporate trustees, which is probably from an administration point of view, the easiest option to go down, obviously, trustees probably have a, you know, a dislike of spending money. But at the end of the day, they they find it, they find it difficult to transition, I guess from an app profond over to an SMSF in terms of expenses, because in an app or fund, you’re just seeing an M er, you’re just seeing an expense in that Apple fund. Whereas in a SMSF, it’s real dollars coming out of your fund. And obviously there’s percentage of that and the higher bounce, you’ve got the lower percentage, you’ve got m er in your own sort of fun, but at the end of the day, it is a slight different mindset from a trustees point of view or moving into it for members as an upper fund moving into a trustee of an SMSF. Because then you’re responsible for, you know, paying all those expenses yourself. So moving moving from a corporate into corporate trustee makes sense even though there’s a cost involved there. Because what that means is that when you have a change of members, or a change of Trustees, it’s easy to transition them in and out. You don’t have to go in and rename all of those particular assets that you’ve got in the fan, you don’t have to go to computer show, you don’t have to go to link market securities, you don’t have to go to whichever platform you’re using, and rename the owner that the trustee of that fund, even though the beneficial owner, the super funds are saying the trustee will have to be changed. And obviously, if you’ve got individual trustees, if you’ve got a trust deed, that trust deed will typically have to be updated for that new trustee to to come in, if you’ve got and that will depend also on on the contents of that trust that the original Trust Deed as to whether they requires a new trustee. So there’s a whole lot of things you need to consider, which when you have a corporate trustee, it becomes less of a pressure point. So you don’t have to do any that you can move directors in and out of a corporate trustee with with relative ease without having to change all of the trustee names of all of your assets. Although when you do have a new trustee at all times, you do have to have the trustee sign in at a trustee declaration form within 21 days of them being appointed a trustee or a corporate or a director of a corporate trustee.

Fraser Jack 

Yeah, fantastic. Well, Shelly, thank you for coming in chatting us today about all different things around the auditing process of the self managed Superfund. Now as the head of education, and Fs audits tell us about how can somebody get hold of you they want to continue the conversation or ask you some questions.

Shelley Banton 

Oh, look, first thing to do, they can get in touch, access our website www.hsn.com.au. And they can certainly contact me if they like, they can contact you through the show. And I can certainly pass it their details on to me, and I’ll be happy to have a chat with them. Even if it’s just a case of you’ve got this particular issue. I’m happy to help as much as I can and be able to get fans back on to being compliant and this and getting rid of that fear factor that people have to sleep with and live with every day. So yeah, let’s make things easier.

Fraser Jack 

I love it. I love the attitude of of getting fans back into being compliant and I love the fact that you’re passionate about that too. By the way, it’s sort of a it’s very unique, you know, skill set to be you know, to be doing and in the fact that it’s right in your wheelhouse is fantastic. So Fantastic if somebody was to get a hold of you, we encourage them to jump on as if I think I said the wrong way round before. But make sure we get that right. And thank you so much. I really appreciate it.

Shelley Banton 

Thanks, Fraser. Thanks, everybody. It’s been a pleasure to be here today. I really enjoyed it. Well, there

Fraser Jack 

you have it, another episode of The X Y advisor forecast on Fraser Jack and joined by Emily Blanche. Hi, Emily. Hey, Fraser, how wonderful. Thank you for asking. So this is an awesome time of the week we get to chat about some stuff that’s going on within the community and give some some shout outs.

Emily Blanch 

It is it is alright. Let’s give a shout out today to deal in Martin. So he’s posted or started, I should say a couple of really great discussions on the platform, which have generated a lot of comments and input from other advisors. One in particular centered around a poll even on ongoing service arrangements. He was keen to get a sense check from others to find out what they’re doing with their ongoing service arrangements given that it’s changed a lot in the industry over the years and how people are tackling this in their business and what they offer their clients and the types of arrangements that they have. So yeah, there’s like 3040 plus comments in there. Everyone giving their two cents weighing in. Just a really great discussion. So Dylan, thank you for sparking a couple of great conversations in amongst the community. I know it’s definitely you’ve generated a lot of value and helped plenty of others too.