From December, funds, platforms and custodians will be able to utilise the Calastone network to electronically communicate half yearly distribution income information between themselves and accountants managing SMSFs, and for 30 June 2015 the distribution tax components can be electronically exchanged and client records automatically updated. This information is currently mostly transmitted by fax, post and email in lengthy manual processes.
Calastone Australia MD Shannon Bernasconi said that automating distributions would significantly benefit all parts of the investment chain.
“There are more than 2,700 Australian funds on the APIR register, with an average of approx 1,300 holdings per platform or custodian. Each individual holding has to have its year-end income and tax statement accounted for, involving manually keying in tax components and income data – sometimes many times over at different stages of the process. This costs the industry up to $35 per holding, every year-end, which is a huge cost. Not to mention the risk inherent in all that manual processing and the length of time that takes, affecting the end investor’s ability to do their personal tax return.”
Matt Heine, Sales & Marketing Director of leading platform netwealth Investments, said the service would offer benefits from cost, risk and reputational perspectives, and promote cohesion within the industry. “Nobody likes year-end. The manual processes are frustrating and stressful for everyone,” he said. “But until now, we haven’t had a viable alternative. So we are really excited to be involved with Calastone as they make further progress in providing automation for the industry. Ultimately, this is a huge opportunity to make year-end a better experience not only for ourselves, but importantly for our investors too.”
Distributions are made up of income from the underlying units of managed fund, plus the tax components. The underlying could be shares, property, bonds and/or cash, so the distribution can include interest earned, franked and unfranked dividends, tax deferred income, and any realised capital gains made from selling investments. Currently, each part of the investment chain is keyed in manually and communicated to the next recipient by email, fax or even post where they are manually handled once again.
“When you examine the process it’s easy to see why managed funds have the reputation – fairly or not – of being clunky and slow at year-end,” Ms Bernasconi said. “Automation offers reputational benefits for the funds, and very significant cost and risk benefits for platforms and custodians. End investors will benefit from the flow-on effects of cost savings, while SMSF investors in particular benefit from lowered costs of holding these kinds of assets. And everyone within the chain will have a faster and better year-end experience.”
Calastone’s distribution service will be available from December 2014 for income information, and tax information from March 2015. Information can be sent and received by EMS GUI, CSV SFTP and XML web services.