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The Future of SMSF Advice

The Future of SMSF Advice

At the SMSF Strategy Day in Sydney, a panel of financial services executives discuss how SMSF practitioners can capitalise on the rapidly evolving advice and accounting landscape.

Moderator: Tony Greco

More than half of SMSFs don’t actually seek professional advice, so there is huge potential. There’s a number of opportunities that you should be considering going forward [that involve] adding some additional revenue streams to your practice.

With the growth [in SMSFs] come opportunities for both planners and accountants, in particular for accountants, with the regulatory change that is going to be thrust upon them.

[There are] accountants who practise in the financial planning space, and financial planners who finally have [realised] that they provide tax advice as part of providing financial planning, so you do have a merging of those two professions.

[We are going to discuss] the concept of a blended practice – in particular, the challenges and opportunities for building the advice side of the business, untapped potential [and] the merging of the planning and the accounting worlds.

David Lane

Why have accountants moved into financial advice, and currently why are they doing it? From a historical perspective, [there’s been] small to medium sized accounting practices [that] have built up a business over a period of time.

I’m sure this has happened to many accountants: Typically their clients began asking them for [financial advice]; at some point… some of these forward-looking accounting firms think, ‘You know what? This is probably a good business to be in. It’s easier for me to, it makes my clients more [sticky] and it also enhances the revenue mix of my business’.

The more diversified the business the better off it is for selling, [especially] when you have something like financial advice [offerings]. So you’re using the same clients, and providing a diversified revenue base.

It has been an evolving discussion, but I think any way you look at it, it makes a tonne of sense to bring together the accounting side of the business and the financial advice side of the business.

Chris Appleyard

I do believe there is mass consolidation to come [with] financial services regimes, and accounting is certainly the new frontier.

The practical applications of working through a multi-discipline practice and evolving your firm into something that is cross-monetised and provides you with the ability to extrapolate an enormous amount of fee out of your existing client base is something that I have found most interesting, and certainly your biggest opportunity.
From an accountancy perspective ... you hold the greatest and most trusted relationship. Unfortunately, the financial advisers, the credit suppliers and the real estate agents come considerably further down the list.

There is this opportunity to capitalise and it is profound – and we encourage it. ASIC encourages it, believe it or not. There’s a lot of fear mongering going on at the moment – [that] this is a difficult thing to do, that you shouldn’t touch other areas of financial advice or other specialist vocations in the advice arena. It’s not true.

Matthew Kidd

It all comes down to potential. Going back to [the year] 2000 … I started a financial planning division within a chartered accountancy firm. They had a total of about $2 million under management and in the space of six years, we had $135 million under management. That was all from the [existing] client base.
So you’re sitting on a [nest of golden eggs]. It’s just knowing how to farm them.

Tony Greco

[There’s] untapped potential amongst the majority of [accounting] firms that haven’t taken that next step. And there are a multitude of choices; it comes down to personal preference and what you’re most comfortable with.
Accountants can go for a limited licence, although only 19 firms have actually [taken up that option] .There [are some accountants] sitting on the sidelines and waiting for other options. There’s also the authorised representative approach, or you’ve got the full AFSL and then you’ve got hybrids of some of those alternatives.
It shouldn’t be feared; it should be about harnessing some of that potential. That’s really what it’s about.

Audience question

The rise of SMSFs is often seen as the enabler for these sorts of blended practice opportunities. How much of a role does it play in your respective businesses in terms of workload?

David Lane

Providing advice to someone in a self-managed fund is in many ways not that different to providing advice to someone in a retail fund.

The reality is that many of these managed funds are run by professionals who [invest] as their day job. I do find it hard to believe that there are a tonne of investors out there who are going to go out and beat the professionals on a regular basis.

I really think it is a matter of taking the right advice as to whether it makes sense for you to be in a SMSF, or whether it make sense for you to be in some kind of other superannuation vehicle.

Chris Appleyard

[SMSFs] have impacted [our firm] in quite an important way. And simply put, the clients are asking [SMSF-related] questions. In my view, you need to be able to facilitate a good part of those questions and provide those strategies because those clients will [otherwise] need to go elsewhere to seek those answers.

If you can’t offer that service, clients will go somewhere else. Because they do need to seek the answers to those questions for their own peace of mind, and people are becoming more astute.

Tony Greco

There is interest from a new class of SMSF trustees… with the [limited recourse] borrowing restriction being lifted. As professionals, we have to explain the risk of putting a geared property into an SMSF and ask whether it is appropriate. There are lots of risks with gearing, diversification becomes an issue, and you need to consider how many years out from retirement you are.

Chris Appleyard

[My view of property is] if you do not start with a blank sheet of paper, you have failed. You are not an adviser, you are selling a product. If you do not structure your process in that way then you have not met the client’s needs; you’ve started with a pre-determined outcome and you’ve sold the product.

That’s what’s wrong with our industry and financial services. It’s certainly what’s wrong with property, in my opinion. It’s fundamentally flawed because you walk into a real estate agency or a property marketeer and you have to get what’s in their window – it’s rubbish.

What the client needs and what their capacity is [should be where you begin.] You start with a blank sheet of paper; determine their needs; qualify and quantify the process; find out what they can afford and why the need to afford; and if it suits them fundamentally.

Then you engineer something that suits their needs and addresses them and that’s how you get a good outcome. And if you manage that process and you manage that well, which takes a lot of time and investment, then you don’t have a conflict.

My comment in relation to the property spruikers out there is a very direct one. Don’t talk about SMSFs if you’re starting with the property in mind – it’s not your field, stay out of it. It may be suitable – that’s all well and good – but how do you know? Start with the client’s needs first.

Audience question

The concept of horizontal integration is nothing new… it hasn’t worked in some other industries. Why do you think it will work just because it has an SMSF focus?

David Lane

If you put yourself in the client’s position, what every client will tell you is that what they really want [is] to give their set of financials to one person and have them do everything. They just want to say, ‘here’s all my stuff, you now know everything about me, I want you to do everything’.

The challenge is: can a firm be mature enough to be a truly diversified wealth management firm and see those clients as clients of the firm and treat them as such? I would argue that there are plenty of firms out there that have historically done a very, very good job of that.

Chris Appleyard

I think the SMSF being the epitome is an enabler across [a range of] industries [that] actually is driving us together. So when you look at the practical application of one that may embark on a property strategy with an SMSF, you’ve got financial advice, you’ve got lending, you’ve got cash product, you’ve got insurances, and you’ve got property.

That very product has caused this horizontal integration, so there is this consolidation by default through property use in something like an SMSF. Historically, the gap between financial advice and accountants has been quite profound; it is a trust [issue] and I believe… [it] is a skill set issue.

The skill set of financial planning has been relatively poor for a number of years, but it is improving drastically and rapidly. The new breed of financial advisers who are coming through are smart, sharp, and experienced. And accountants are slowly starting to respect that now.

Accountants are starting to merge and work together as well, but lawyers are a whole other concept.

Audience question

All three of your businesses hold your own AFSL. How much is that holding of the licence… the backbone of being able to expand into these various sectors?

Matthew Kidd

For us, having an AFSL is an opportunity to attract advisers who have similar investment [philosophies] as us.
We also help them build their business. We work very, very closely to help them build their practices. Because we are… actually practising advisers, we work to help our advisers grow their businesses. To us that’s where our fundamentals are and our philosophy and that’s why we’re attracting a lot of new advisers.

Chris Appleyard

It’s control. Having an AFSL is the epitome of control, and if you don’t have it then you can’t dictate [that control]. So in many ways, an AFSL is the backbone.

Is an AFSL required for an accountancy practice? Perhaps. [You need to] know your firm and know why you’re doing it and what the purpose of it is.

An AFSL gives you the control, it gives you the flexibility and certainly just the sense of ownership in the direction [you take] – what kind of advice, how it looks and feels and smells and how you look to charge and so on and so forth.

So I think it’s vitally important. As far as whether it’s economically viable or not, ask any dealer group principal Not really. I would rather not have to do it, but it’s an important by-product of wanting to develop something a little different and deliver ultimately [a] multi-discipline practice.

David Lane

What I would say is an AFSL for most people and for most businesses… doesn’t make sense. I think for most small businesses taking out an AFSL is a giant liability. You go and sell your business and nobody wants to buy it, it is effectively a series of future claims, and you will hold to [that same partnership] until those claims run off.
Ultimately, I think it’s a scale game. And I think if you’re a small accounting firm you would question whether it makes sense to have your own AFSL.

The Future of SMSF Advice
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