Education for SMSF trustees - what should it really mean?
Constant changes to an already complex super system mean trustees should be continually learning. Rather than focusing on compliance and rules, trustees need new tools to help make good investment decisions
I constantly read articles in the press and listen to technical experts at conferences telling me that there needs to be more ‘education’ for SMSF trustees. But to achieve what?
No lesser person than Albert Einstein once said, “The only thing that interferes with my learning is my education.” Einstein is understood to be saying that the education system ignores a wide range of subjects required for personal development, humanity and social growth.
There are similarities with ‘educating’ SMSF trustees and other superannuation investors.
Are we teaching the right skills?
As a technical person and an administrator, the questions I am asked are not normally about the duties and compliance obligations of trustees. What people are actually seeking is practical knowledge in managing their portfolios, not ‘education’ rules.
Most of the SMSF trustees I meet are educated people who have been successful in their accumulation of superannuation assets. They may not be doctors or lawyers but they are educated in their chosen career, and the financial rewards have followed. SMSF’s have a higher average accumulation balance than any other form of superannuation and are the largest segment of the total superannuation pool.
The knowledge that SMSF trustees are seeking includes answers to questions such as:
What are the tools and services I need to get the best out of my fund and how do I find them?
What are the different investments I can use?
What are the risks associated with investments and are they applicable to me?
Where do I go to hear other people’s ideas?
Is there a benefit in borrowing as part of my retirement strategy?
When I retire, how much will I need?
How do I make sure what is left over when I die goes to my family?
Why should I make after-tax contributions into my superannuation fund?
Of course, you need to be licenced to answer many of these questions.
In the 25 years that I have been involved in this industry, no one has ever said to me, “I would like to be the trustee of my SMSF and take on all the compliance responsibilities, please.” SMSF ‘education’ is not primarily about our industry teaching the endless responsibilities of an SMSF trustee, which begins when the ATO’s SMSF booklets on responsibilities and compliance are sent to every trustee.
What we want and need as an industry is for people to retire well and have a sound, comfortable financial future. If we focus too much on every trustee knowing exactly how the Superannuation Industry (Supervision) Act 1993 applies to them in detail, we have lost sight of what is really important.
I acknowledge that members still need an understanding of the SMSF trustee rules. However, I don’t see that as an industry we have done a good enough job of helping people meet their goals.
Where should the industry be heading?
Trustees need to find information which is important and useful to them, and have tools that tailor responses to their personal needs. These might include information on specific shares, managed funds and other investments; opinion articles which encourage thought and debate; or perhaps more complex issues of asset allocation and portfolio construction. We currently expect investors to read everything to find what is useful to them.
Companies like Amazon, Google or Facebook offer the opposite. They have developed search functions which are more in tune with their users’ interests. The more someone refines a search or uses a service, the better these businesses know the personal likes and dislikes. They suggest other books or products which may be of interest specific to the personal characteristics. Users can categorise and search on genres, study suggestions, or browse, purchase, build and edit play lists.
For all the money invested and ASIC controls, the financial industry seems stuck in the dark ages (before ‘i’ became a prefix or we heard the verb ‘to google’). We seem to work on the principle that we need to tell trustees everything there is to know. Einstein’s problem exemplified.
Better decision-making tools needed
Our industry needs to frame responses in ways that are meaningful. This is not the usual communications about how funds outperformed peers in the previous quarter, or the in-house economist taking a guess at future market returns. It is about understanding future goals and the steps needed to reach them.
Consider a simple example. Why don’t super funds include in their statements an estimate of the amount of annual income (expressed in current day dollars) that a client can expect in retirement based on current savings patterns and expected returns? There is little merit in telling a 30-year-old that their super will grow to $1 million in 30 years. That will simply make them complacent, with many not realising $1 million in future dollars will not fund a retirement. But if a client earning $100,000 a year is advised that on current projections, their superannuation will likely provide an annual income of say $45,000, that’s a useful piece of information that may lead to action.
The property market is showing signs of such innovation. For example, the Castran Gilbert website provides tools that enhance the usual search functions. If an investor is looking for yield at a particular price point, the website lists all the properties that fit the criteria. It then provides decision-making tools like rents in the surrounding area, sales and valuations, as well as the usual specifics on each property. Even further, it allows financial modelling on cashflows, lists taxes, provides solicitor contacts and gives online access to contracts and documents. It has taken the best features from existing sites and combined them with a range of decision-making tools to tailor the end result for the user.
A new breed of ‘knowledge’ tools needs to be developed to allow people to find the things that suit them and use them to make better investment decisions. It is hard to find something that you don’t even know exists.
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