SMSF Automation – don’t be fooled

Look I love automation.  Being able to switch money around and pay bills from an app on my phone at any time of the day sure beats the old school of using cash and tellers.  Remember those times and the interminable wait.  It goes to show that a well mapped out process and system can be automated with the right software code.  Of course, there is the downside.  How many tellers have been redeployed or made redundant and the back office to make those transactions work, well that is going by the wayside.  And wasn’t it NAB who just told its shareholders that 6,000 jobs were to go as a result of digital automation.  Merry Christmas bank back office and middle management.

Now there are some things that can’t be automated just yet.  Well not in the SMSF space, despite the hype and marketing.  Remember the penalties for making a mistake are at best a fine and at worst being caught under a strict liability legal action for recovery of all losses, damages and legal costs.  I won’t touch imprisonment but it has happened to the early release super promoters.  So all cards are on the table.

So what am I talking about?

Well the following can’t be automated:

  1. Investment Strategy

This is a forward looking document and requires the Trustees to make a decision.  Once the decision and criteria for making the decision on objectives and strategy have been made in a meeting, the transcription can be completed.  But automated?  How can you automate an investment strategy in a SMSF?  Look at the work that retail and industry funds put into their investment strategies and decisions.  And I have said it before, the copy spat out by software systems for use well after the start of an income year when a strategy should be in place cannot be an investment strategy.  Where is the decision making?

  1. Statement of Advice

Look I have tried on so many occasions to try and automate an SoA.  But with EVERY fund its own and never like another there are just too many variables.  I mean recommending on a rollover of super without a detailed written assessment of insurances, investment strategy and reserving policies in the transferring fund  in a Statement of Advice is well outside the Corporations Act 2001.  Contributions strategy SoAs without the discussion of spouse switching, transfer balances, taxation and investment strategy are dangerous and certainly non-complete.  And how does an investment strategy cope with an influx of cash or in-specie contributions?  Is there an automatic breach?

  1. SMSF Estate Planning

I could write pages and pages on this particularly around Binding Death Benefit nominations and auto-reversionary pensions.  Imagine an SoA on these? Read the SMSF Estate Planning chapter in “The Guru’s Guide to SMSFs” to see the full import of what SMSF estate planning is about and what must happen on the death of a member.

  1. SMSF Audit

I may be naïve but all surely the auditor is required to check and assess all transactions against the Funds governing rules and trust deed.  Failure to do so renders the auditor liable to a strict liability action pursuant to section 55(1) of SISA.  I am happy to listen and learn but surely a compliance audit cannot be automated.

SMSF advising is an art and requires grey matter.  At some stage, hopefully in my lifetime, artificial intelligence SMSF software will take over some of the heavy lifting in terms of assessing the tax, financial and wealth merit of a strategy but until then it is what is between our ears.  But it is incumbent upon anyone dealing with SMSFs in a direct or even an indirect advising touchpoint to keep up to date with the understanding the law and deed and applying it.  These are the industry competency standards required at a bare minimum.

How do I know?

Well I had a hand in writing them for the purposes of RG 146 “Provide advice on SMSFs” and also the SMSF Association.

Anyway forget automation for strategies – it is for data feeds into SMSF software systems.  Read “The Guru’s Guide to SMSFs” and watch our for the upcoming release of the I Love SMSF membership programs where you can get your whole firm schooled in SMSF knowledge and strategy.