A word from our sponsor
In 2009, when we launched Class Super, we sensed we were about to embark on what was set to be an interesting, challenging and fast paced journey.
Six years later and the industry has gone through dramatic change, due in no small part to the widespread uptake of technology and in particular, cloud-based solutions. Many thousands of accountants, advisers and administrators have jumped on board to reap the huge efficiency gains that technology can deliver to their SMSF practices.
By freeing themselves from the heavy burden of manual workloads, practitioners have been given the opportunity to rethink how they structure and operate their businesses – and to assess what they need to do to remain relevant in a rapidly changing industry.
With constant and increasing pressure from trustees for added value, improved service levels and better client engagement, and the need for greater collaboration between service providers, accountants and advisers are being forced to evolve beyond the nuts and bolts of compliance and focus on the new emerging role of trusted advisor to their clients. Those that don’t embrace the change may quickly find the world has passed them by.
While we can’t say for certain what the future holds, the cloud is here to stay.
It’s no secret that basic compliance and administration services are becoming increasingly automated within the SMSF sector, with the capabilities of technology accelerating at pace.
Without doubt, technology and automation brings with it various threats, such as the loss of compliance work and price pressures. However, there are also a plethora of opportunities that are often lost in the hype.
Leveraging these technologies will be critical to remaining relevant to clients and competitive in the years to come. Focusing on high value skills, driving efficiency, interacting with clients more effectively and offering new and improved services will be vital for SMSF firms in order to survive.
What are the threats?
The digital disruption and advances in technology occurring within the SMSF space will see some irrevocable changes in the way SMSF practitioners do business, and some services are more at risk than others.
Class Super chief executive Kevin Bungard says technology poses the biggest threat for those performing basic tasks in the SMSF sector.
He doesn’t believe technology poses an imminent threat, however, over time greater efficiencies through technology will see price pressures flourish across the market.
“There’s potential over time for [clients] to say well if you’re just doing basic work, if you’re not adding value, what am I paying you for?” he says.
The challenge for service providers in the future, he says, will be ensuring they are adding value by performing a role as a trusted adviser or virtual CFO; assisting clients and doing something the client values.
“Clients don’t value someone just doing record keeping, they want that done for as cheap as they can get it and don’t see it adding any value whereas if you’re helping them with strategy or planning or dealing with the problems they’re concerned about and providing solutions, you’ll always be relevant,” he says.
One of the biggest threats for accountants in particular, Mr Bungard says, is the evolution of basic compliance work, especially in light of some of the ATO’s automation efforts.
The ATO he said is removing the need for tax returns through some of the software programs they have underway.
“Their goal at the moment is to do a million tax returns with effectively no touch – the second commissioner Geoff Leeper said they want to drive that up to 5 million tax returns,” he says.
Mr Bungard says the ATO also has plans to remove red tape and costs of half a billion dollars which will mostly come from professional fees.
“If you’re an accountant focused on providing compliance services or what the ATO considers to be a red tape service and you’re part of that half a billion dollars of professional fees that they’re effectively going to eliminate, then you should be worried about that,” he says.
Aaron Dunn, managing director of The SMSF Academy also agrees automation will drive down the price of basic compliance work, particularly as SMSFs are now attracting a younger demographic.
“ATO statistics show around four in every 10 SMSF trustees are under the age of 45,” he says.
“Understanding where pricing points are will be a relatively important consideration for some of these younger trustees who may be starting with balances below what is the ordinarily ASIC prescribed circa $200,000 amount.”
Trustees are also becoming increasingly more tech-savvy, and are seen to be driving demand in new technologies and services such as the ASX’s mFund service.
“Just looking at our data since we launched the service, we are seeing the major uptake is SMSF accounts,” said Andy Rogers, head of stockbroking at CMC Markets.
If SMSF software reaches a point where a large proportion of the administration is automated, accountants could potentially be disintermediated with clients performing the accounting process for their fund on their own, added Smithink’s founding director David Smith.
“Would clients want to do that? That’s the question – perhaps they wouldn’t – I suspect some might though,” says Mr Smith.
According to Mr Smith, administration, financial planning, auditing and tax accounting services will all face some level of threat from technology.
“No-one is immune from technology change and all four of those activities will be impacted to one level or another,” he says.
“Some of the very popular software, it gives the users a great deal of freedom, and so that enables them to do all sorts of transactions that aren’t necessarily appropriate,” Mr O’Meagher said.
“So, you really do need someone with some experience and knowledge of the industry to run an eye over what is going on to pull them up when things are inappropriate.”
Seeing the light
While technology does present a number of threats to the SMSF industry, it also provides SMSF businesses with an opportunity to focus on higher value services and connect with clients in new ways.
Heffron SMSF Solutions managing director Martin Heffron says technology removes the basic, boring and repetitive work and frees staff members up to perform more interesting and intellectually challenging tasks.
Similar to the manufacturing industry over the years, Mr Heffron says technology is now having an impact on the service sector.
He sees the current technology disruption as a continuum of the industrial revolution.
“When the cotton industry was mechanised, a lot of people at the time said it was a terrible thing; ‘it’s going to mean no one will have any work and the skills we have as cotton artisans are going to be taken away’ but none of that happened,” he says.
“All that happened was the industry got more efficient, different jobs were created, more interesting jobs, and better quality products were produced.”
In the SMSF industry, Mr Heffron said increased automation will give practitioners an opportunity to focus on their relationship skills and subject matter of expertise.
Mr Heffron says these will be the two key skill sets for anyone in the retail financial services space in the future.
“Being a high quality financial planner or accountant will benefit you more in the future than what it does now because at the moment we all get distracted by the compliance stuff we have to do and which we won’t in the future,” he says.
The increased efficiency driven by technology will also help practitioners build scale in their business, says Mr Bungard.
Practice management workflow tools, documentation generation tools for providing documentation around strategy and tools for updating financial records and accounting records he says will all drive efficiency in practices, he added.
Traditionally Mr Bungard says it has been difficult for SMSF practices to build scale.
“Once you’re managing more than 100 SMSFs, the complexities of managing that can be quite daunting,” he says.
“Technology means you can manage a greater number of funds and that means if it’s a business area that you’re interested in you will be able to provide a better level of service to a larger number of clients,” he says.
Another one of the main benefits of technology is that it reduces costs through efficiency, Mr Smith says.
Some of the technology from the admin providers he says already allows much more efficient and accurate processing of data, enabling accountants to provide more up to date information to clients on a cost effective basis.
“Traditionally accountants deal with SMSFs once a year so their clients see the information when it’s quite out of date; now there’s an opportunity for these admin platforms to provide regular, updated information on the status of their fund,” he says.
“Some people are now providing daily information to their clients about the status of their fund so there’s more up to date information, more accurate information and more efficient processing.”
Mr Smith says reductions in costs are going to come from the sheer efficiency of the administration and audit platforms coming onto the market.
“We’re seeing elements of that right now, costs are being driven out by the fact these technologies are processing these funds so much more efficiently,” he says.
BGL managing director Ron Lesh says advances in technology or automation provides practitioners an opportunity to look at introducing new or improved services for their clients.
However, before implementing any new technology into a SMSF business, Mr Lesh says practitioners need to think about where their business is going and what they want to provide to clients.
“Then build a technology around that service so you can automate it and make it easier to deliver to your clients,” he says.
Audit automation: is it possible?
There are varying opinions in the sector on whether the SMSF audit process could ever be fully automated, with the point of debate coming back to whether it’s possible to automate judgement.
Mr Dunn believes fully automated auditing well never be fully automated because it will always require some form of opinion.
“I don’t think it will ever remove the need for specialists and practitioners in that area,” he says.
A more automated form of auditing he believes will however see a move to more regular reporting, enabling an auditor to take more of an overseeing role on a lot of data.
Rather than just conducting an audit over the top of the investments, Mr Dunn says auditors will be able to identify compliance risks in real time.
On the other hand, Mr Smith says fully automated auditing is possible in the future, although he concedes it’s still a long way off.
He says audit automation depends on the admin platforms opening themselves up in order for auditors to be able to obtain all the necessary information.
Auditors, he says, will also need to build highly intelligent software engines that can look for all the bits and pieces of information they need to ensure everything is done correctly.
“I think that’s a while away; there’s a reasonable amount of effort required to build a machine intelligent enough to highlight all the issues that need to be highlighted.”
Mr Smith says the automation of audits also depends on third party verification of data.
“Auditors would need to automate linkages to banks, share registries and other sources and have the confidence that the data from those institutions is accurate,” he says.
Administration systems he said will need to comply with the GS007 standard which none of the platforms currently do due to the expense.
Given there is always an element of judgement in any audit, Mr Smith said fully automated audits will also depend on machines being intelligent enough to make decisions which are currently subject to human judgement such as making valuations about assets and how assets are disclosed in financial statements.
“The question is how far away could machines make those judgements – my opinion is that it’s probably 10 or 15 years away,” he says.
“That said machine automation is moving at a cracking pace, so it may be quicker than I think.”
In the meantime Mr Smith says a lot of the procedural work in auditing can be stripped away.
“We’re going to be seeing that happen in a fairly rapid rate of knots because some of the self-managed super auditing companies are making a fair amount of investment and there are other auditing platforms like audit flow.com, who are building more and more automation in the audit process,” he says.
When it comes to what skills are likely to remain relevant following increased automation Mr Smith says any skills requiring judgement or opinion are going to be key to success, as they provide value to client.
He says savvy practitioners at the top of the knowledge chain and with a deep understanding of how to get the most out of SMSFs will be seen as valuable by clients.
“[SMSF practitioners] need to have high level skills and knowledge about the operation, issues and potential pitfalls relating to SMSFs, not just the compliance piece,” says Mr Smith.
There will be a need for advisers to work on their communication and conversational skills as well as their ability to utilise technology, he says.
“There is a need for what people are calling two professions, in other words they may be an accountant or a lawyer but they’re also a technology expert at the same time,” says Mr Smith.
“I think that will be the practitioner of the future – people who have the right mix of IT and core professional skill.”
Mr Bungard added that in order for accountants to remain important to their clients, they need to fulfil a role as a trusted adviser.
He says while there is an ongoing debate over whether accountants need to become licenced, even if an accountant doesn’t operate under an AFSL they can still perform a coaching role as a way of providing added value for their clients.
“When I go to my accountant I’ll ask them a whole bunch of questions about a whole lot of things that I’m concerned about and they give me a level of comfort that I’m doing the right thing,” says Mr Bungard.
He says while this wouldn’t be classified as financial advice in terms of being under an AFSL, the ability of a practitioner to answer client questions, help them get the services they need whether that’s direct or through a third party and assist them with strategy is something likely to be seen as added value by clients.
Similarly, Mr Dunn says specialist skills will see even greater demand in the SMSF sector in coming years.
“The notion of understanding very complex superannuation rules and taxation rules, understanding strategy, implementing a strategy and dealing with outcomes are going to be specialist skills that continue to be required,” he says.
“Technological changes are going to change the make-up of a business in terms of support staff, the business model and the delivery of services and having the right skills will be absolutely critical going forward.”
Connecting with your clients
Connecting with clients will become increasingly important with improved technology and automation entering the market as it will be one of the main ways practitioners can prove their value to clients.
Mr Dunn says while face to face meetings with clients will remain a critical part of the service SMSF practitioners charge for; they also need to maintain regular communication with their clients through things like content marketing.
Using social media to exponentially grow your message he says is a key part of content marketing.
According to the Future of SMSFs report conducted by the SMSF Academy, however, only 22 per cent of businesses use some sort of social media.
Larger SMSF businesses had a higher adoption rate with 45 per cent using some form of social media, according to the survey.
“The fact we’re living in a more content rich world means providing regular content whether it’s through written content, video, podcasting or whatever else is going to be something critically important,” says Mr Dunn.
“It doesn’t mean the business needs to create its own content, but the ability for people to curate content, share it and create their own flavour around it is going to be something fundamental in communicating with clients.”
Mr Dunn says rather than using a broad approach, practitioners should focus on a few things that suit their business.
“I often say to people focus on two or three things whether it’s blogging, YouTube, Facebook or whatever,” he says.
“It doesn’t come down to the numbers of likes and follows you have but rather the penetration of the audience you actually have.”
Mr Lesh believes over the next year some of the client portals being designed by large companies like Deloitte and white-labelled for smaller firms will be something extremely useful for firms wanting to connect with their clients.
These portals he says give trustees access to technical information as well as daily updates on where their investments are, what their contributions are and where their balance is at.
Mr Bungard says with everything shifting to mobile devices, if clients want to access and look up information, SMSF firms need to be able to provide it on mobile devices and have the technology to support that.
“If there’s information they want they’re more likely to be looking for it on their mobile phone then sitting in front of their computer – I think that’s just a fact of life,” he says.
While the big data generated by large organisations remains fairly difficult for SMSF practitioners to access or use, it is possible to utilise the information within their own databases to benefit their business.
Mr Smith says one day SMSF practitioners will be able to tap into very large databases of SMSF data containing extremely useful information but this first has to be enabled by the large administration providers.
Practitioners he says will also need tools in order to be able to interpret the data in the systems which he believes is also quite some time away. Mr Heffron says another issue that will first need to be addressed is the question around “who owns data, who has the right to access it and who has the right to use it and what for”.
In the meantime he says there are ways in which practitioners can utilise their own data such as setting up an alert so when a SMSF client turns 60 the adviser is aware of this and can speak to the client about pension options for instance.
According to Mr Bungard, big data underpins a number of things that will be happening in the space including the automation being implemented by the ATO as well as some of the new services coming to the market such as robo-advice.
“That’s what practitioners should be worried about, things that are coming down the line,” he says.
Given that the larger pools of data are generally controlled by large organisations like the ATO, he says there is generally little practitioners can do to interact with as they have limited access.