While most advisers see SMSF advice and administration as a good way to demonstrate their value to clients, adviser Nick Bruining likens them to getting a bad tattoo.
“Both have been popular in the last decade, and at the time they seemed like a good idea,” Bruining says. “Now, 10 years later on, many are regretting them.”
Bruining – a former director of the Financial Planning Association – is the founding principal at Perth advisory firm Bruining Partners. He says the firm has “two or three legacy SMSFs” on its books but does not encourage their adoption due to a basic belief that they are more trouble than they’re worth.
“In many cases the complexities are not adequately explained to the client and it often relies on one individual being the ‘lead’ trustee,” Bruining says. “When that person can’t act, we often see the remaining trustee(s) paying a fortune in costs”.
While SMSFs can deepen the client relationship and make them more ‘sticky’, Bruining believes this is the wrong approach. Take this out of the equation, he explains, and self-managed superannuation funds become a lot less attractive.
“If you view the super-fund – whatever form it takes – as simply a tool in the planner’s tool-kit rather than a product to be sold, you soon realise what’s in the best interests for the client,” he says.
Running an SMSF as an adviser, he believes, is a problematic endeavour.
“I might be wrong, but I see it as one of my professional responsibilities to separate advice from the product. If we are the product (as in running the SMSF or managed account) then it is inherently conflicted and, in my view, not in the client’s best interest anyway. If they can’t easily break the connection, then it reinforces the conflict,” he says.
Push and pull
Bruining’s assertion comes just a few months after ASIC released a fact sheet emphasising the risks involved in SMSFs, particularly those with small balances. The fact sheet was widely criticised for using scare tactics and flawed data.
“We certainly are disappointed with the tone,” said SMSF Association CEO John Maroney. “It casts SMSFs in a poor light and we think it lacks balance.”
The fact sheet, which was sent out to all new SMSF members in November as part of a trial, estimated that it takes over 100 hours a year to run – a figure that was derided by industry experts.
“With data feeds and email making collation and exchange of information so easy these days I think this figure is at least 40-60 per cent over estimated,” said Liam Shorte, director at Verante Financial Planning.
ASIC also said the average cost of running an SMSF is $13,900 per year, which Maroney refuted.
“We think around $5,000 would be more accurate,” he said.
At the SMSF Association national conference on the Gold Coast in February, Senator Jane Hume went into bat for the sector, highlighting that the number of SMSFs has doubled since 2006 and assets have grown to $746 billion.
The growth of SMSFs is driving competition, Hume said, and giving consumers more choice in how they save for retirement.
“Our superannuation system is enormously important to the future of working Australians, to the current wellbeing of our retirees, and to our economy – and we’re committed to seeing the SMSF sector playing a pivotal role in that,” she said.
No lamenting the ‘good old days’
While SMSFs remain a popular choice for consumers and advisers, their support is not universal.
Bruining says his firm prefers to run superannuation accounts invested on “low cost, well run, broad offering public offer platforms”.
“We build model portfolios based on managed fund research and implement them via the most cost-effective platform for the funds involved.”
He admits his firm has lost clients due to their stance on SMSFs, but insists it’s “not that often”. He says the advisory is quite happy to refer clients to a number of other providers if they want an SMSF, but the topic rarely comes up unless it involves a wind-up.
“We do quite a bit of work with SMSF wind-ups,” he adds. “Ironically, over the years we’ve seen plenty who we turned away previously [who are] now coming to us to help sort out an SMSF mess. Of the 50 plus clients who are now out of an SMSF with our guidance, none have ever lamented the ‘good old days’.