– SMSF advisers poised for business growth despite legislative and competitive challenges
– Strategic advice the key driver of future growth
Despite the ongoing legislative and competitive challenges facing intermediaries in the self-managed super fund (SMSF) sector, the large majority of professional advisers expect the SMSF revenue of the business they work in to grow by more than 10% over the next three years, according to CoreData’s 2014 SMSF Professionals Report.
Financial planners are slightly more bullish than accountants on SMSF revenue growth, with more than three quarters anticipating revenue growth of more than 10% (76.7% vs. 72.8%) and more than half of the planners that say this is the case expecting revenue growth of up to 25% (53.6%).
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Strategic advice is seen as by far the greatest source of future SMSF revenue growth, as cited by the majority (55.3%) of accountants and two in five (40.4%) financial planners, while client referrals are viewed as the top source of new SMSF clients in the next three years, according to three quarters of both planners (73.5%) and accountants (76.7%).
Interestingly, referrals from external accountants is cited by more than half of planners (55.0%) as a future source of SMSF clients.
“This suggests a need for planners to start building strong referral partner relationships with those accounting businesses that are not interested in becoming licensed to provide SMSF advice,” said Kristen Turnbull, head of financial services at CoreData.
“Our research on this sector tells us that a substantial portion of the accountant market have no intention of obtaining a license to provide SMSF services, which means that by 2016 they will need to find alternative arrangements to deal with existing and future clients with SMSF establishment or advice needs. Planners should be building these relationships today as a foundation for future growth.”
Keeping up-to-date with legislative change and competition remain key challenges for SMSF professionals going forward, with almost half of planners (45.7%) and 30.1% of accountants citing legislative change as the greatest challenge for their business in dealing with SMSFs today, and almost two in five planners (37.1%) citing this as the greatest challenge for their business dealing with SMSFs in the next three years.
Fixed and time-cost fees dominate
Fixed annual fees (28.9%) and time-cost fees (23.7%) are the preferred methods for charging SMSF clients. However, there is a marked difference between planners and accountants, with planners preferring fixed annual fees (37.7%) and accountants favouring time-cost (annual) fees (49.5%). Of those charging a fixed fee, some 39.7% of intermediaries servicing SMSFs use scales with add on calculations, with this more common among accountants than planners (46.2% vs. 38.4%).
Transition to retirement (TTR) income stream strategies is the leading strategy provided by both planners (83.4%) and accountants (79.6%), followed by limited recourse borrowing arrangements (74.8% and 70.9% respectively) and re-contribution (69.5% and 68.9% respectively).
Planners are more likely than accountants to provide advice on the family super fund (72.2% vs. 62.1%) and expensing insurance from general accounts (47.0% vs. 30.1%), while accountants are more likely to advise on auto-reversionary pensions (58.3%).
Administration is the most commonly outsourced activity among businesses servicing SMSF clients (78.0%), followed by SMSF establishment (62.6%). Planners are more likely to be outsourcing both of these services than accountants.
Accountants less likely to hold specialist qualifications
The Parliamentary Joint Committee (PJC) inquiry into professional, educational and ethical standards in financial planning has put the spotlight on the qualifications of those offering advice in the financial services industry.
Financial planners are more likely than accountants to hold specialist SMSF qualifications (58.9% vs. 43.7%). Three in four (75.0%) accountants without these qualifications believe they are not necessary. Accountants tend to turn to professional development activities instead, undertaking slightly more SMSF-related PD hours every year compared to financial planners (25 hours vs. 22.6 hours). However, there is strong appetite among accountants for further education, with more than half (51.7%) of accountants intending to obtain SMSF specialist qualifications in the next three years compared to only two in five (40.3%) planners.
“The needs of SMSF trustees are often unique and complicated in comparison to the average super fund member, so it stands to reason that professionals servicing the sector should have the appropriate qualifications and experience to make informed decisions on behalf of their clients,” said Turnbull. “This doesn’t necessarily mean specialist qualifications, but the PJC’s latest inquiry certainly raises some questions over whether the minimum RG 146 qualification for advisers is appropriate going forward.”
