How close are we to ‘zero-touch’ SMSF administration? (Part 1)
Unless you’ve been living under a rock (or maybe a collapsed pile of Master Tax Guides), you’ll know technology is creating massive shockwaves across the accounting and wider financial services industries.
And thanks to the investment-oriented nature of SMSF accounting and administrative functions, the self-managed space has already seen significant automation. Transactional data feeds and ‘if this then that’ style coding have been speeding up laborious data input and reconciliations for years.
When used correctly, these relatively simple features (contained in many accounting software programs) can have a significant impact on efficiency. Over the past five years I’ve seen the time to complete an average set of SMSF accounts reduce significantly. And all because improved transactional data feeds and rules now automatically allocate/code a significant number of those transactions. Instead of manually dealing with every transaction, we’re now dealing only with exceptions.
But there’s still a lot of room for improvement.
The key factors that drive efficiencies are:
- Getting the right data into an SMSF administration platform/accounting system
- Dealing with the data once it’s there
- Getting information out of the system for stakeholders.
Getting the data in
So much data can be pushed into an accounting platform these days. Here’s a table showing what SMSF data is (and isn’t) available. (Note: This isn’t an exhaustive list.)
Getting more data fed directly into an administration platform means SMSF accounts can be prepared more efficiently. It’s a relatively simple concept, but one that a significant chunk of the SMSF industry has failed to grasp.
The table comes from The SMSF Academy’s Future of SMSF Report (August 2014), which also states 40% of accountants don’t use any data automation for their SMSF clients. And why not? Because they don’t think they have the scale or resources to make it worthwhile.
Unfortunately, that means more than 5,000 businesses (based on 13,033 tax agents) risk the quality of their SMSF service delivery falling behind the rest of the market. And with business owner clients needing better service as they move into retirement, these businesses need to be paying attention more than ever.
Working with SMSF data
— Kris Kitto (@Kris_Evolved) May 26, 2015
Getting accurate and timely data into an SMSF administration platform is one thing. Efficiently converting it into useful information for key stakeholders (members and trustees, independent auditors, the ATO and financial advisers) is another.
Because SMSFs are investment-focused entities and highly regulated, they’re subject to rigid accounting. Most assets, income, expenses and member contributions items can only be treated in a certain way. This means SMSFs are more suited to being automated than other business entities, and will feel the impact of ‘robo-accounting’ a lot sooner.
As I mentioned earlier, ‘if this then that’ transaction-based rules can automatically allocate and code a significant portion of common SMSF transactions. However, there are always gaps that need to be filled. Moving into the 2016 financial year, SuperStream will plug the gaps in employer contributions and rollovers.
Looking further into the future, it will only be a matter of time before the software property managers use will integrate data to plug the gap for rental property income and expenses. The Electronic Service Address for SuperStream may even allow SMSFs to receive remittance advices for more and more transactions.
The ATO has also said it will expand the use of its Standard Business Reporting (SBR) for more robust two-way communication between the ATO, super funds and employers. While the focus will initially be on APRA regulated funds, SuperStream shows that SMSFs aren’t immune to these changes. So the accountants working with SMSFs will either need to change, adapt and use technology to deliver a better client experience, or risk losing them completely.
There’s a second layer of automating accounting transactions. But it’s a little trickier to describe, so I’ll talk about it in our next article. I’ll also talk about how to produce useful information for the key stakeholders, and predict when zero touch SMSF accounts will become a reality.
Part 2 of this article is available here: How close are we to ‘zero-touch’ SMSF administration (Part 2)