If SMSF professionals can do a good job of helping SMSF trustees manage their fund well, through better education, information and advice, then there will be no need for any tightening of legislation affecting the SMSF community. And it can help them grow their business!
One tangible way for SMSF Professionals to do this is to provide a new benchmarking service to self-directed trustees.
Nick Shugg, CEO of SMSF Benchmarks, says ‘SMSFs have a problem, especially those who are self-directed. They often have no idea whether their overall fund is performing well or not, and the implications of that can be significant.
SMSF Professionals can help them with this problem, by providing a benchmarking service specifically designed for SMSFs, using SMSF Benchmarks as a tool in the background, packaged up with their commentary and advice.’
So what are the typical limitations with benchmarking for self-directed SMSFs?
According to Shugg the 6 most common limitations with current benchmarking for SMSFs are:
1. Omitting “losers” in their share portfolio before benchmarking.
2. Benchmarking against the publicly available S&P/ASX 200 index,which is just a price index.
3. Failing to calculate returns using a method least impacted by the timing and size of contributions and pension payments.
4. Only benchmarking the Australian share part of their portfolio, even if they had 80% in term desposits – which could have earned significantly more in other defensive solutions.
5. Benchmarking against an industry fund or a multi-sector benchmark portfolio with an asset allocation quite different to theirs.
6. Benchmarking their total fund’s 3 year return against a multi-sector portfolio, based on their current asset allocation, even though their asset allocation changed during the 3 year period.
SMSF Benchmarks is a new independent on-line service which enables advisers and accountants to help their clients and prospective clients address these limitations for the first time, with peer-peer comparisons of balance, returns and risk.
They have also designed 11 benchmark portfolios specifically for SMSFs, based on how they are typically investing, according to ATO Statistical reports. Once released, these will allow SMSFs to compare against relevant benchmark portfolios for the first time, as well as comparisons against appropriate groups of peers – even allowing for changes in approach over time.
This information can be used to enhance existing information given to clients, or prospective clients, and can be used to measure how a group of advised clients has performed compared to a group of self-directed clients, or other groups of advised clients.
Apart form being useful information for internal management purposes, it provides an excellent opportunity to increase referral rates between accountants and advisers either in an integrated business, or between external organisations.
