Sent: 05-05-2010 14:31:04
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The Cooper Review and SMSF's
As mentioned yesterday my view of the Cooper Review draft recommendations are reasonably favourable.
There is not much in the proposals that people will find particularly difficult or objectionable.
The 10 guiding principles are good.
I disagree with the suggestion that listed equities must be traded through an exchange when the transaction involves a related party of the fund. A proper financial audit should pick up any silly valuations for off market transfers.
I'm very pleased that the Cooper Review will not suggest we should have a separate law for SMSFs.
The barriers to entry into SMSFs would be quietly raised. Taken as a whole however I cannot see the proposed changes reducing the long standing march to SMSFs slowing. In the short-term there might be some slight realignments.
This will not please our Industry Fund brethren and they will no doubt voice their anti-SMSF rhetoric to other ears. The question is, have people already stopped listening?
The issue of auditor independence has the potential to cause some controversy.
Accountants and auditors are likely to ask why they have been singled out. In fairness, they might say, why hasn't this been extended to other professional areas, such as actuarial or legal work?
For example why should one business provide financial planning, accounting, tax, actuarial and legal work for an SMSF but cannot do the financial or compliance audit?
This need for adviser separation really comes out of the Arthur Anderson controversies here and in the US several years ago.
In any case accounting practise rules are the preserve of the accounting profession and its unlikely any of the accounting bodies will give this function away easily or without a vigorous fight.
But as always you need to remember that the legislative and regulatory amendments are a very much imperfect science and one can never be confident that ultimate outcomes will match draft proposals changes. What's more there are always unintended consequences when the Parliament amends the law.
Regardless of who wins the next election (Sportsbet has the ALP as favourite) we will have a new Minister. This is not saying Mr Bowen should be removed from his portfolio. The reality is very few Ministerial appointments stay the same after elections.
Further to my view yesterday that the value of super portfolios will be hit by the Government's proposed resources super tax - yesterday the Australian's website carried an article which said that the Prime Minister was telling Tony Abbott to pass the Government's new super concessions. The Australian allowed people to respond to this story and one reader (Ken H of Chapel Hill) wrote the following which I thought nicely added some weight to the argument I made yesterday about investment losses versus super concessions:
"During the last few weeks the price of BHP and RIO shares have fallen from $44.93 to $38.93 and $81.25 to $67.31 respectively. The falls follow a sustained rise in the prices of both shares up until about one month ago. Since the falls in prices have not been related to other market factors, it is most likely that the falls result from the RSPT announced by the Prime Minister last Sunday. Using the total shareholding of both companies (approximately 3.35 billion shares for BHP and 606 million shares for RIO) it is possible to measure the destruction of value of the Prime Minister's RSPT at this early time at approximately $20 billion for BHP and approximately $8.5 billion for RIO for a total of about $28.5 billion. When the other miners are considered the total destruction of value is far higher. When the approximate Australian shareholding of 60% for BHP and 30% for RIO is considered, the Prime Minister's RSPT has destroyed some $14.5 billion of wealth for Australians. Much of this is from superannuation funds. This is the immediate result and before the tax actually kicks in."
For the record, Mr H posted this comment just before 3pm yesterday before the market closed. BHP and RIO shares closed lower than Mr H's low point - BHP lost another 39c and RIO another 25c.
The Australian newspaper is reporting this morning a report from Deutsche Bank which says that it estimates the net present value of miners has declined by 7% "(but with new projects threatened)".
Finally please consider purchasing a copy of my book. You can look at the contents page at the following link: http://www.atcbiz.com.au/r.php?r=0mjd6ne
The second edition has just been released.
Two options are available - once only subscription - $55 inc GST - or an annual subscription will gives you access to all the updates made throughout the year ($120 inc GST). The book can be purchased at the following link: http://www.atcbiz.com.au/r.php?r=5a4agqb
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