Podcast | Episode 43 – How the SMSF sector continues to evolve

Speaker 1:

Welcome to the Smarter SMSF Podcast, the show where we discuss the latest insights, ideas and strategies with self-managed super funds. All designed to help make smarter decisions and equip you to be at the top of your game. Now, here’s 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 further exploring some of these key issues around our Future of SMSF survey and in particular just talking about how we as a sector is evolving. I go back to our 2014 report and I spend a bit at time as we started to develop these survey questions which we’re now approaching around 200 people that have been a part of the Future of SMSF survey, so their participation and to those of you that have I do say a very special thank you for putting that information in.

In that 2014 report, I wrote what was an open letter to the SMSF profession, and it was at a time where once again SMSFs were a part of a government review that being the Financial Systems Inquiry, and it’s the ongoing continuing challenges that we see from inquiries through to legislative change if we look at budgets each and every year. Then overlay that with just the way in which technology is ultimately changing what we do in the sector.

We find that this evolution of SMSF continues to change and change at such a rapid rate. Now, at this time in the report I talked about this concept that Jeremy Cooper who is the chair of the Super System Review referenced SMSF as well-functioning.    I’d argue to say that we still sit within the guise of a well-functioning sector, strengthened only through regulatory reforms and the ongoing process in which ASIC oversees and the Tax Office oversee the operation and compliance of the SMSF industry. Now, with the continued growth we’re certainly not going to see those spikes that we’ve seen historically overtime, in particular maybe through times of poor investment performance and things like licensing and the removal of the accountants exemption or all elements to which we’re starting to see some level of stabilisation in the SMSF sector.

Now, when we think about this evolution we are of course still seeing younger members enter the (SMSF) market, more education behind them in terms of their understanding of SMSF, but also their understanding of investments, understanding of technology, the tools that give them the power to make decisions themselves and informed decisions, more informed decisions that they’ve ever had before, and it’s these types of things that are then clearly resetting the expectations in service delivery of service providers inside the SMSF space.  Recently, I spoke to Katarina Taurian from SMSF Adviser around an article with this tsunami that was occurring across the SMSF sector (https://www.smsfadviser.com/news/16724-tsunami-like-shift-in-smsf-firms-as-real-time-hits).

Really, it’s this ongoing challenge for the professional who doesn’t really putting the attention into the SMSF part of their business, and sure we go through the challenges of keeping ourselves technically proficient in this space, but it’s much more than being technically good that will ultimately deliver success inside the SMSF sector. I’ve mentioned this back in this open letter in our 2014 report that talked about the importance of specialisation but it wasn’t the panacea to delivering SMSF success. That was and is today still very much true, and it’s these concepts that I spoke about again in this report, these winds of change that were upon us and as we reflect back since we did that inaugural report back in 2014, we do continue to see the evolution and impact of what these reforms have had over time.

If we think about the delivery of advice and the key services that are being provided to trustees, we see what was this perfect storm around the regulatory reforms, the advancement of technology, these changing demographics of trustees.  Overlay that the more current reforms and very much so we have this tsunami of things that are impacting the way in which trustees are demanding services, but the way in which you as a professional would be looking to provide those services as well.

I think historically where we’ve seen a larger component of the accounting profession deal with SMSFs were starting to see some level of compression around that, and in particular we don’t necessarily have the stats on this but our report initially suggested that those that were a specialist business were tending to set up far more when it come to new (fund) establishments. So a very smaller percentage of the sector say around 10%, we’re setting up more than 60% of all funds and we found that out in our 2015 report.

I suspect that that’s going to grow even further – in terms of the tail of the SMSF sector really starting to dry out and slowly over time those smaller practitioners that are really dealing with small numbers of SMSF are going to find it more difficult.  The challenges of not only dealing with these superannuation reforms, the transfer balance account reporting, whether they’ve made a shift to cloud technology, all these things are going to start to throw up barriers to remain competitive in the value proposition that ultimately gets provided to the clients.  Because historically we’d argue that we were born out of a cottage industry but we have seen and I made comment in my initial open letter that there is a seismic shift underway.

That’s certainly been the case when we look at the larger administrators that have formed, that were starting to form at that point in time, and we can now see businesses aggregated under listed companies, Super Concept is a great example of that. We see larger administrators like Heffron and Intello, and so forth that have really taken the ‘bull by the horns’ and not only looked at the efficiency play but looked at the delivery of their service model to create something that is truly customer centric and that customer centricity also relates to the advisor landscape as well and using technology around what is their ecosystem. Relaying back into their core SMSF software whether that’s Class or SuperMate or BGL and integrating it purely through a document platform with their actuarial service providers, and much, much more and even to the extent of using the API to build bespoke systems that enable them to interact the way in which their clients are expecting and the way in which they want to interact with their clients as well.

This goes to the very heart of when I said that the SMSF sector is ripe for disruption and that is where we are continuing to see a range of larger organisations. Again, we look at something like BT Panorama that is really focusing on empowering practitioners as well as looking at the operation of what Panorama can do in a financial planner sense and providing the accountant with the tools to have ongoing discussions with their clients as well. That really is about driving scale, driving efficiencies that can be done in the practice, but having a client centric approach to delivering value and helping the client meet ultimately their retirement goals.

But importantly, as I said in this open letter, this industrialised approach isn’t necessarily going to spell the death of the local practitioner, but it’s going to require a greater focus towards specialisation and uptake in technology, being more competitive in terms of the value and pricing around that, and being very clearly defined in the strategy.

These are again the elements that we’re looking at in our Future of SMSF report, and trying to distil what we see as those key elements are that build out a successful SMSF practice. This is where we’ll be running some events later in the year, around late October early November, looking at these very issues and helping you to understand what it is that will unlock the power of your practice, whether you’re a small practice that in itself you shouldn’t fear but if you are prepared to take on board the things that are necessary to deliver that success you will continue to drive a successful business model.

As I touched on before this whole specialisation piece, quite interesting when we look at our survey stats at the moment, we haven’t really seen any great increased representation of specialists within the industry. That as I said in itself isn’t necessarily the panacea for success. What we’ve done historically when I’ve presented on this topic is we’ve spoken about and breaking up, if you think about it in a chart going … we’ve got a Y axis, X axis looking at high and low in respect to specialisation and technology, and those that are investing in high specialisation, high technology are really what I see as our industry leaders.

They’re the ones that continue to invest and build out successful practises in their own right. We do however see those that have higher levels of technology, so using cloud-based technology is one really good example, but a lower level of specialisation.  Maybe, not specialists but generalist as such and therefore they may be outsourcers, so they’re going to be pressured around pricing points and that service delivery, but it is still a very competitive space in which people are looking to operate in – globalisation of those services is a prime example thereof, I must get an e-mail or a LinkedIn message just about every bloody day from someone trying to sell me offshoring services when it comes to accounting and SMSF.

Not that I’m against that or pro that, but it is just an understanding of where the industry is at, that we do see this globalisation having an impact on the pricing and delivery into the marketplace. We ask those things again inside of our survey to try and help you to understand why are you outsourcing is it domestically? Is it internationally? So is it offshoring?   We’re also seeing having had a chat to Nick Sinclair from The Outsourced Accountant with this about whether we’re seeing practices now investing in staff offshoring rather than necessarily outsourcing on a per job basis as well. Now, on the other side we still do see ‘practitioners’ and we define that as a practitioner who really enjoy the specialisation, the skill set that comes with but is not necessarily investing in the technology to deliver the efficiencies that they may want to get in their practice.

The bottom one obviously if we’ve got low specialisation, low technology which there are some still around the other practitioners trying to be everyone to everything sometimes, that kind of dinosaur concept is something where in essence they’re really struggling to hold on and something like the superannuation reforms, could be the real tipping point in particular when we think about things like transfer balance account reporting (TBAR) and the risks that are going to come with that, not so much now because the ATO’s providing a real educative approach to dealing with those issues.    As we move to enforcement around these things, if the shift doesn’t occur then we are going to see some real problems present in the future.

The other area that I spoke about in the open letter to the SMSF of profession was where opportunities lie. It was at this time going through the transitional phase out of the accountant exemption that practitioners openly saw licencing as a big opportunity. That ability to provide strategic advice today and even looking at the initial stats through our 200 odd participants sees that advice is an enormous opportunity when it comes to their SMSF clients.

Now, what is interesting and having been in many discussions with practitioners over this point in time is that many practitioners moved into licencing because that’s what the regulations said had to be done. In reality though, the journey to taking advantage of what this presented for them wasn’t done very successfully. What I mean by that is that for practices that were in essence already overflowing in terms of what they were doing each and every day. You’ve got the practitioner, you might be working 60 hours a week you have full but all of a sudden you’re impacted by what these reforms are.

So the obvious thing to do was to go and get yourself licensed. Now, the reality is you are using desktop software, not getting any of the efficiency gains. You then start to try and drop in a change in your business. Plus, the ability to do licencing etc. etc., and the only way you’re going to facilitate that was in essence moving from 60 hours or 70 hours to 80 hours or 90 hours a week. That wasn’t going to work and very few and those that did it successfully actually took an approach that looked more like this.

In that three year transitional period, they took the time to assess where they wanted to get to. What I mean by this is, it’s part of the specialisation that they built into their business, they knew that the shift to cloud was going to actually provide them with the opportunity to move from what is say 10000 hours of work that they currently do and within a three year period we found in this initial report that they could be about 40% more efficient. Within a three year period once we got to the end of the transitional accounts exemption, when we got to 2016 they are now what was taking them 10,000 hours is now taking them 6,000 hours. From that point of view, when they got 18 months into the journey, they started to look at what their licensing options were, and that efficiency play enabled them to look at how the work was being done inside their practice, but then also importantly give the appropriate party who had the limited licence for example to start to have the conversations with the client because they’ve now built capacity and are now doing higher volume work as well.

It’s those practitioners that really took advantage of what that reform actually meant, and more importantly capitalised and capitalised quite substantially on the changes that needed to occur when the super reforms came in from the 1st of July 2017. There’s something in there really for you as a practitioner to learn if you’re looking to expand out the services in particular revisiting where you want to get to once you’ve taken onboard that cloud technology. Again, in our Future of SMSF report change management here is a critical piece because it’s getting new systems and processes right. Looking at your pricing, looking at the way in which you’re going to be doing that work, and then sticking your head up from above all that and saying, “Well look where do we want to get to? Where are we going to be in three years’ time, and what is that going to mean in terms of the available time that we have in our practice? Who’s it going to make available and therefore what do we want to do with that?”

This is where businesses that have done this really well have maybe created and made born the specialist SMSF administration business, is because they’ve now gone in and gone to market with a specialist offering into financial planners for example. That ability to provide efficiency, highly efficient services, really knuckled down in terms of what that efficiency can provide, and the service delivery enable them to increase the output of funds per employee.

On the flip side, the decision may be, well that if we build that capacity and maybe we do then look at the licencing and the licencing opportunity therefore enables us to have more in-depth conversations with our clients on an ongoing basis. So they’re the things that you need to contemplate. One of the things that we’re working on, I’ve been working on with Kath Bowler over the last little bit, we’ve got a webinar coming up next Tuesday the 24th of July to give you a bit of a sneak peek of what we’re doing (https://smartersmsf.com/unlicensed-accountants-in-the-current-smsf-landscape/).

It’s really only part of the story because I’m sure if you’re unlicensed, you’re going to have conversations but you’re restricted in what those conversations are going to be.  If you can move to that next step, and actually open up the way in which you can have those conversations and make the recommendations and add real value to your client, that is not only going to fundamentally change the relationship with your client, but can set you up and set you up quite successfully. We’ve got some of our members who really took the reforms as an opportunity to move into that strategic advice space in SMSF.

Not only did they do work for their own clients but did a whole heap of additional work for other accountants that didn’t have the capacity or the ability to generally do that (due to licensing). That provides huge opportunity inside to practice to position yourself as the SMSF expert when it comes to that type of specialist advice that’s needed. Not only around reforms but as we move on, you can look at a whole range of skill sets and topics within SMSF that you’re really adding value, and you can ultimately provide advice for.

This last bit that I spoke about in this open letter is around again embracing technology. We all know about how important technology is as an enabler, and I’m really looking forward to emceeing the BGL REGTECH events where we’re going around Australia – the first one kicks off in Sydney on the 31st of July, and really just looking at the concept of what it’s going to mean as an accountant in the future. The theme is ‘accountants in beta’, because when we look at regulatory compliance it is changing and changing very quickly. This ecosystem and why I really like the concept of the event is it, it enables as a service provider the ability for us for example to showcase the work that we do in conjunction with BGL.  It enables us to have the ongoing conversation and look at in an ecosystem, what we can do to help support a practitioner that is a BGL client, and it applies right across software providers in general.

Again, it’s working on and showing the solutions that couple in nicely with your core SMSF software, and that collaboration whether it is documents, whether it is actuarial certificates, property valuations, it doesn’t matter, but it’s that ability to use the ecosystem and the fact that it is going to be growing in importance. I made that very comment again in the report – it is going to be fundamental again to the success that gets delivered to your clients on an ongoing basis.

Interestingly, when we did our TBAR eBook and surveys back in June, again we didn’t see practitioners really looking to improve on taking onboard technology, so they’ve sure you get your data feed signed up and whatever else needed to really occur I guess. The changing your practice is the bit that really helps you leverage the efficiency, so that the messaging from the software providers is to say, well you know you can become 100% – 200% more efficient, but  the way in which you do your work has got to change too. It’s like we can get you to the trough to drink but the software provider isn’t going to make you drink. That really comes with you, it comes with leadership in your business, it comes with the ability and preparedness for individuals to want to change as well. That’s all these things when you wrap them up together that is going to ultimately help you to build a smarter SMSF future.

That is really why again we’ve put our Future of SMSF survey together, it’s why when I look at industry trends what’s happening, the ability for you to understand not only where the sector is heading from a demographics point of view, we see the ATO provide the statistical summary each and every year, it gives us insights plus the quarterly data, gives us insights into what’s happening.

More importantly we’re getting even greater data now coming out of class with its benchmark report, BGL is providing more information. Some of that is then being collated I should say into this SMSF Association’s Think Tank to help I guess again understand what it really means to be providing more real time data, to be able to make decisions and push back on government policy, to push back on things like the Productivity Commission, where they’re talking about notional numbers of a million dollars in an SMSF to make it work which seems a bit of a nonsense number when conceptually ASIC has done research in their own right, that $200 – $500k. To go, well all of a sudden we’re now looking at five times what was the previous average just doesn’t logically make sense but we need to validate that with strong statistical data, which we now have 300,000 funds on cloud that we have data feeds coming in, literally each and every day hopefully for a very large portion of those. Which gives us some really valid data to be pushing back on policy from, and helping to really grow what will be a stronger sector as we move forward into the future.

That’s it for this week’s podcast. Like I said it was just trying to help you understand how the sector has evolved, and as we look forward even further it does provide some interesting, somewhat scary when you think about it times, but fundamentally for a practitioner it’s going to come down to the way in which you can articulate the value, and the way in which you engage with your clients.

We have our software providers really working with tools like artificial intelligence, chatbots, all the weird and wonderful things with machine learning and so forth. Those are the things in practice that we don’t need to be too concerned with ourselves right now, but we will over time need to understand just how this technology is going to be has evolved and is going to improve what we do each and every day.

So thank you once again for joining me in this week’s Smarter SMSF podcast. As always, if you do have any questions you can reach out to us by email or on any of our social media channels. Have a great rest of the week and I’ll speak to you next week. Take care and bye for now.

Speaker 1:

Thanks for joining us today on the Smarter SMSF podcast. That was a smart move. If you want 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.