While many SMSFs continue to rely on financial planners, the latest Vanguard/Investment Trends SMSF Report indicates this proportion has declined in recent years, in line with the growing number of SMSFs that are struggling with investment selection.
The report was based on responses from almost 5,000 SMSF trustees and close to 300 financial planners who advise on SMSFs.
Investment Trends chief executive Michael Blomfield said although financial planners played a significant role in the early days of the SMSF explosion, the number of funds using a financial planner has not substantially increased since 2007.
The report estimates that there were around 210,000 SMSF trustees using a financial planner in 2007, with that number only growing to 215,000 in 2019.
On the other hand, the use of other types of advisers, which would mostly be accountants, has increased significantly, jumping from just 70,000 back in 2007 up to 275,000 in 2019 based on estimates in the report. The remaining 105,000 SMSF trustees don’t use any type of adviser.
Satisfaction with financial planners
The report also stated that satisfaction with financial planners has declined to a seven-year low, dropping from 81 per cent in 2018 down to 74 per cent this year.
Mr Blomfield noted that while satisfaction with planners has seen a drop amongst SMSF clients, a 74 per cent rating is still a high score for satisfaction.
“While satisfaction has come off amongst SMSF trustees who use a financial planner, it hasn’t collapsed. People who use an adviser are still giving them pretty high scores,” he said.
“[However], we have seen that their willingness to recommend their financial planner has dropped fairly substantially.”
The biggest issues impacting satisfaction levels with planners were value for money, clarity of fees and charges, and level of fees, according to the report.
Unmet advice needs
The report also indicated that 315,000 trustees continue to have unmet advice needs. The top areas where SMSFs want more advice is SMSF pension strategies, inheritance and estate planning, identifying undervalued assets, tax planning and investment strategy, and portfolio review.
In terms of the barriers preventing them from seeking advice, the report found that the top reasons this year were a lack of confidence in the expertise of advisers, the cost and a poor experience with an adviser previously.
“Trustees are not finding the value at a price that they really think is worth it and that’s been partly because planners will say, ‘Look, we have to do this giant discovery process, it’s going to be very expensive and we can’t leave anything out”, but trustees are saying, ‘Well, I just need a bit of help, I don’t need all of the help’. So, planners get wedged,” Mr Blomfield explained.
Challenges for advisers
In terms of biggest challenges for advisers in servicing the SMSF market, compliance, accountants setting up SMSFs for clients that are not suitable for SMSFs, and educating clients about their responsibilities as trustees were listed as the top three.
“Advisers think that most things are going to become harder. Regulatory uncertainty is the one we see constantly as it makes it difficult for those investing and the people advising them,” Mr Blomfield said.
It also proves that clients are very comfortable getting the (unlicensed ) advice from their accountants.
It is impossible to compete from a price and efficiency perspective with the huge numbers of unlicensed accountants who provide advice in this area. Prepare an SOA which is 100 pages long which takes a considerable amount of time versus tell the client what to do and document it as a client directed transaction, its obvious which one is cheaper. Time for ASIC to actually do something but that would involve them doing work. It’s also why accountants aren’t getting licensed because you would have to be an absolute moron to get licensed in this area unless it was your core business.
We simply found we didn’t need the advice or ongoing fees from adviser who was essentially a middle man between fund and accounting firm doing things we could do ourselves for a non-complex SMSF. Using our accountant directly has saved us a lot of time and money and we now simply pay an adviser on a fee for service basis as needed. Win Win.
Illegal advice provides a much better risk-return secenario for SMSF professionals than giving licensed advice. Signing an SOA now is like putting bomb under your own house and hoping it doesn’t go off.
MUCH better to stay off ASIC / AFCA / FASEA / PI insurer’s radar and manage risk by keep fees down and keeping your clients genuinely happy instead.
I have been touring the country over the last six months getting face to face with planners and also SMSF Trustees. The BIG issue is succession planning in a SMSF and quarantining any death benefits for the exclusive use of a family’s bloodline or immediate circle. Some of the strategies that I have bounced off the planners have worked in securing value added advice for SMSF members while providing fees for the adviser. The key is the education of the adviser and automation of the strategy for consistency, reliability and above all compliance.
Many freely tell me they give “factual advice” which would in the AFSL world be regarded as implied advice but don’t provide an SoA, even if they have a limited licence. They would fail the reasonable person test in the regs but many either can’t see this, or know it and do it anyway.
Laws may have changed the behaviours don’t seem to have. How this plays out is anyone’s guess.
On the numbers we are SMSF specialists and have a high proportion of funds compared to most planning firms. We’ve hardly recommended any in the last few years. Platforms are so much cheaper, functionality so much better, the rise of managed accounts and the increased costs of accounting services over the last 5 years have all led to reduced reasons to establish an SMSF.
As the SMSF continues to grow more complex with the government’s unrelenting legislative, I think both clients, advisers and accountants are challenged when to comes to engaging with their clients. Both advisers and accountants could look for assistance from the Fin-tech’s who are working tirelessly to fulfil this need.
It begs to question how many accountants are providing advice without being licensed to do so?
It does not beg, it proves that accountants are providing unlicensed advice.