Episode 39 – Future of SMSF – insights into the sector today

Aaron Dunn:

Welcome to the Smarter SMSF podcast, a show where we discuss the latest insights, ideas, and strategies with [inaudible 00:00:12] funds, all designed to help make smart decisions and equip you to be at the top of your game. I’m your host Aaron Dunn.

 

Aaron Dunn:

Hi there folks, Aaron Dunn here from  Smarter  SMSF  and  welcome  to  this week’s podcast where we’re going to be taking a look at some of the challenges and opportunities that sit within the SMSF sector today. And I’m pleased to announce that we will from the 2nd of July this year (2018) be launching our future of SMSF survey. It was back in 2014 that we initiated the inaugural future of SMSF survey and subsequently the report, looking at many of these challenges and opportunities that sit within SMSF practices at that time. What we had seen historically was a lot of focus on the behaviours of trustees, it’s these concepts of controlling behaviours and coach seekers and outsourcers. But how you as a professional was dealing with the trustee was something that I really felt passionate about exploring because we saw this ever growing opportunity and for those businesses that really bunkered down and look to capitalise on the evolution of technology and what just this regulatory change was going to do within the SMSF sector. Those combinations of things were certainly going to formulate what I saw as a successful SMSF business model in the future.

 

Aaron Dunn:

So like I said, 2014, we did our inaugural  report.  We  then  subsequently  surveyed again in 2015, looking at a whole range of issues around, again, this continuing evolution in technology, and what are the things that are really driving higher performing SMSF business models. And historically we have seen this evolution of practices moving to a greater level of specialisation. So, whether we’ve seen the development of an SMSF specialist business in its own right, or a specialist division, it is these types of practices that are standing out and we tested that historically in our future of SMSF survey, where not only we saw a greater number of funds, but a greater focus on the challenges and efficiencies that would come with a more finely attuned SMSF business model.

 

Aaron Dunn:

Now it’s fair to say the last couple of years have been quite  hectic  as we’ve evolved with substantial change, not only with the superannuation reforms but if we go back to 2016, where we saw substantial change on the impact of accountants with the removal of the accountant’s exemption in particular with the fund establishments. But I guess ASIC’s focus has become a lot sharper since the removal of that reform as well. When we think about today, and this is why I decided that this year in 2018, it’ll be a great time to revisit this – Not only because I have a little bit more time to ultimately look at this now, given that we’ve had so much change we’ve had to go through with the reforms post 1, July, ’17, but we’ve seen a huge shift now in terms of where the industry is heading. So if we think about from an observation point of view, we now have around 300,000 funds administered through SMSF specific cloud-based software.

 

Aaron Dunn:

Now go back four or five years ago and we were certainly nowhere near a representation of 50% of the trustees having their compliance obligations done on cloud technology – whether that’s simple fund 360, class or supermate (software). We have seen historically though the continued challenges of keeping pace, looking at pricing, looking at service delivery and the competitiveness that is coming in, in particular that administrative level around the pricing points for those types of services. And as I said, the huge legislative reform that we’ve had in the past 18 or so months has created some substantial challenges for those in practice, whether it’s as a specialist business or even generally for those that apply SMSF across their general practice.

 

Aaron Dunn:

And it’s these types of changes, when we overlaid the legislation and  the regulatory reforms that have come with that, that it’s become more and more challenging and more and more difficult to look at how you can have conversations with clients, how you really offer value and articulate that value against the backdrop of this ongoing regulation. And when we look at, what I’m seeing more closely inside SMSF practice, whilst the cloud, this evolution of cloud has been quite substantial, if we think called the law of diffusion of innovation, so their bell curve, we are certainly coming towards the end of what is that early majority period. When we looked at the future of SMSF back in 2014, we were probably right at the very beginning of that early majority (phase). We had seen some cloud technology around for just a little bit of time, but this evolution in the move to cloud has really started to come on in leaps and bounds in the last two or three years.

 

Aaron Dunn:

What is very apparent though is that there has been a real lack of change management when it comes to practices and the strategy in the move to cloud technology. And this really dawned on me in a recent ebook that we did, and the polls and surveys around the transfer balance account reporting. And this is something that we’re really going to focus on this year in our future of SMSF report and just seeing what are some of the reasons and challenges why we’ve seen the shift to technology but haven’t really seen what I would argue as I successful implementation, coming right across not only the way in which the work is being done, but then how that transpires into the SMSF business model when we think about pricing and client engagement, etc. etc.

 

Aaron Dunn:

And it’s this inconsistency in approach that is leading practices into really a false sense of what cloud technology can ultimately do. And I guess that leads not only on to that process, but if we think about the broader ecosystem in terms of how we do our work, so the ability to plug into an API – so, for example, without Smarter SMSF platform to be able to prepare best practice documents. Or making sure we really leveraged the efficiencies that we get out of ongoing data feeds, or actuarial certificates, whatever the case may be, making sure we have a business model that can fundamentally deal with all these issues is going to be critical moving forward.

 

Aaron Dunn:

Now, one of the other things that I’ve found very interesting over the past few  years has been this continued push towards efficiency. Now whilst that is a great outcome inside a practice, to me the bigger issue here is, is that the reasons that we going for things like cloud technology has very much been an inward focused approach, rather than actually having it being as a client centric approach – therefore, looking outwards in terms of what our client experience and engagement should ultimately look like. Because over time what we’ve seen, again as being practices moving to cloud technology without actually giving their clients any of the access because they’re not maintaining currency  of that information in the system, because they get too busy in doing what they’re doing rather than building systems and processes to be able to deal with the way in which your client may be demanding, but also the way you should be engaging with your SMSF trustees as well.

 

Aaron Dunn:

And as I  said, I  do get this genuine sense that for  many practices  they are  simply not ready when it comes to the new transfer balance account reporting requirements that are to commence in just a few weeks time from the 1st of July, 2018. So we as a profession really need to think about a maturing strategy inside of the (SMSF) sector. And sure we do have the larger end of town and there’s been a greater commercialised or industrialisation (the word that gets used more commonly) of the SMSF sector. As larger publicly-listed organisations look at it, and we’ve seen the evolution of larger scale administrators and we only need to look at Class’ quarterly benchmark report that talks about the different sizes of administrators and emerging administrators and so forth. That we will continue to see larger sized businesses really knuckle down and focus on the efficiencies, the effectiveness of delivery in providing genuine scalable solutions.

 

Aaron Dunn:

But that doesn’t mean in my view that those that want to operate 50, 100 to 200 funds can’t compete in this space. And again, this is why we’re exploring what practices are doing, what they should be doing to help validate what I see as the most successful SMSF business model of the future. And this is why off the back of the report which we’ll be releasing towards the end of September, or maybe early October, will then not only be highlighting some of those challenges, but then taking you through workshops right around Australia where we’ll be showing you what you need to be putting in place. Not only validating what my knowledge and expertise in this area, but also validating that through the information that we see in the future of SMSF report to help you build a pathway for success.

 

Aaron Dunn:

Because as I said, if you’re prepared to change with the way in which the sector  is moving, I actually genuinely believe you have a very, very exciting future ahead when it comes to SMSF. But for those that want to continue to do what they’re always doing, not only does it mean in my view, again, you are prone to greater risk than has ever been the case. And that comes about when we think of specialisation, we think of the competitiveness that potentially you can leverage through technology, but all of that risk and opportunity that is in there … in respect to opportunity, I guess, you won’t have the ability to provide, whether it’s from a knowledge point of view, whether it’s a lack of the licencing requirement and the technology, as I said, from I competitiveness framework – these are all things that we see certain segments of the (SMSF) sector, so practices that are doing it far better than others. And again, these are just some of the many things that we’ll be looking at as we work through the future of SMSF this year.

 

Aaron Dunn:

So this real willingness to change is going to be absolutely crucial. The fact that  we need to look at the way in which businesses are going to be standardising what they do and how they do it. Making sure that it complies and you have a strong understanding and consistency right across practices and a value proposition, like I said, that is outward looking rather than simply inward focused around being more efficient in doing what you’re doing each and every day. So as I said, we are looking at the release of our future of SMSF survey on the 2nd of July (2018). So, Monday, the 2nd of July. It will cover a whole range of areas about you and your practice. We’ll be looking at the services being provided, the impact of technology and as I said, some of the issues around change management. The way in which you engage with your clients and much, much more.

 

Aaron Dunn:

For every participant we’ve got some fantastic incentives for you to participate in this year’s future of SMSF survey. Not only as has been the case in the past will you get a free copy of our future of SMSF report, but we will also be providing a couple of prizes as an incentive to get you involved as well. And as I touched  on earlier on, we do have some exciting events and information that we’ll be making you aware of as we work through this future of SMSF report throughout this second half of the year. So like I said, it was something I wanted to share with you today. It’s an area of great interest for me in terms of what we’re doing in practice, because as practitioners it is absolutely critical and it’s why as part of our re brand to Smarter SMSF, our goal is to equip you to be at the top of your game and if you are prepared to do so, as I said a little early on, you have wonderful opportunities in front of you.

 

Aaron Dunn:

But you do need to look at and consider your existing SMSF business model    and ask yourself, do you need to niche down a little bit further? Do you need to contemplate the expansion of services inside your practice to better engage with your SMSF trustees? And I’ll leave you with, just a very simple task for you to think about doing whether it’s by yourself or whether you do it within your team.  I want you to contemplate the last 12 or 18 months when it comes to the superannuation reforms. And the four things that I ask you to think about is, is well, (1) what actually worked really well within your practice with the implementation of the superannuation reforms? So, was it that you got your education and training right that gave you the ability to engage with your clients from a very early stage? Or was it something else?

 

Aaron Dunn:

The second question I want you to ask is, (2) what actually didn’t go very well or what could we have done better? So think about it again – is it in the context that we maybe didn’t start early enough when the regulations came out? Or we didn’t have a consistency in the documentation that we should have used from day one? So we didn’t really explore what our options were. Think about some of those things that didn’t work. And then the third one is, I want you to contemplate, (3) if we had our time again, what would we have done differently? And in that context, what I want you to think about is, is well in that respect, well what will we be doing different as we move forward? And the most obvious one there to think about is the impact of the transfer balance account reporting. And finally I ask you to contemplate (4) what would it actually mean to you if you’re able to implement those things that you think are important inside your business?

 

Aaron Dunn:

So let’s just summarise again. So the four things that I would suggest you have   a think about with the super reforms over the last 12 to 18 months. I’ve done this with a range of practitioners over the past little bit (few months) just to get them reflecting and thinking about the progression of their SMSF business model in the future. So what worked well? What didn’t work well? What would we do differently as we progress forward? What would it mean if we were able to do those key things?

 

Aaron Dunn:

So thanks again for listening to this week’s SMSF podcast. Something a little different, but it is an area that I’m really passionate about and looking forward to putting together this year’s future of SMSF survey and sharing those insights with you. Like I said, we’ll be launching this on Monday the 2nd of July, 2018 and you can find out more on our website, smartersmsf.com/futureofsmsf.

 

New Speaker:

Thanks for listening and I’ll look forward to you joining me in  next  week’s podcast. Take care and bye for now.

 

Aaron Dunn:

Thanks for joining me today on the smarter SMSF podcast. That was a smart move. If you’d like to find out more about today’s topic, you can add a comment either at our website, smartersmsf.com via our Facebook page, or using our Twitter handle @smartersmsf.