What’s next for SMSF technology?
Smithink’s founder David Smith, who predicted the death of video stores long before anyone else, gives a comprehensive wrap-up of where financial services technology has been, and what revolutions are still in store.
Way back when I started in the profession in the early 1970s, only the biggest firms had any sort of computers. My firm didn’t even have an electronic calculator. We had 25 per cent of our staff as comptometrists (all you Gen Ys can look that up). We had partners who could add up the numbers in the phonebook just by running the fingers down the column. I entered into this particular world as a young trainee accountant, who had to grab these large ledgers and manually write up the super fund accounts. It wasn’t too hard, actually, as those were the days of the 100 per cent loan back funds (I’m looking into this distance wistfully thinking of the past). Communication was the world of telephone and telex.
Of course, into the 80s roared the personal computer. 100 per cent loan back funds were gone. Accounting was a lot more complicated with investments to be tracked. So we developed a PC-based SMSF admin system, PKF Superfund, which for many years was the market leader until it was acquired by Solution 6, now part of MYOB, in 1999. Those were pioneering days. We used to ship thousands of floppy disks (are you still with me, Gen Ys?). Software moved from text-based systems to graphical user interfaces based on Microsoft Windows or Apple Mac. Communication had moved to telephone and fax.
But the real revolution was to come. In the mid-1990s came the internet, if you could get your modem working. With the promise of things to come, text file data feeds of market prices could be downloaded and processed.
As the internet has evolved we have seen quite stunning (for people of my age) increases in speed, download capacity and most importantly reliability. As I write this using Google Docs, a word processor solely in the cloud, I’m trusting the reliability and performance of the internet in a way that could not have been imagined in those early years.
So now we see desktop software dying. The advantages of cloud software are clear – always up to date, available anywhere on any device with the ability to seamlessly integrate to other databases and applications, collaboration opportunities… the list goes on and on.
Who would have imagined the SMSF software of today? When I first saw the early stages of Class in about 2007-8 I thought to myself ‘these guys have nailed it’, albeit I did warn them that it would take years to perfect. They saw the opportunity of automating data feeds to effectively eliminate much of the manual transaction processing. These concepts now form the heart of all SMSF admin platforms. As these systems become more sophisticated they are now using machine learning concepts to further reduce the data entry required. By watching how transactions are processed they can then apply the same rules to future transactions with the same characteristics.
We are witnessing, not just with SMSF, but with accounting more generally the death of manual transaction processing. More transactions will be fed by data feeds. More systems will be integrated together to transfer and process each other’s data. Machine learning will pick up what’s left. Compliance reporting is just an end product automatically produced.
Of course, for some people, in particular some in the accounting profession, this is a fearful time. The potential threat from automation of compliance services is real, although not as imminent as we might think. The accounting, financial planning and legal professions in Australia benefit from just about the world most complex taxation and financial services laws (don’t get me started!). It will be some time before some machine gets its head around all that. A malfunction or meltdown is more likely.
But I don’t look at it this way. To me this is the most exciting of times; the most liberating of times. I’ve got to tell you that it was no fun writing up those super fund ledgers by hand in the 1970s. What today’s technologies are doing is sweeping away low value work enabling those professionals who are ready to embrace the change to develop new services that will provide new insights and greater value to clients.
The most obvious of these is the coming revolution being brought about by big data, data analytics and robo-advice technologies. In the next few years we will see the majority of SMSFs and small businesses move their data to cloud-based accounting/administration platforms. Imagine now a world where every transaction for every SMSF is stored in the cloud. The analytics engines, that can also learn, can then model this vast database and discover hitherto unseen trends. How may this be used? Here’s some examples:
1. Discover transactions that might be fraudulent. This is how the credit card companies are using big data concepts today.
2. Unlock insights into the drivers of fund (or business) performance. In the case of SMSFs there is a whole array of possibilities. Investment strategies is probably the most obvious, but I suspect it will go much further than this. As we all know the world is a complex place and humans add to that complexity. As social scientists will tell you, humans are not logical much of the time (sorry Dr Spock). So we may discover all manner of interesting insights. The age and financial circumstances when you’re best to establish a SMSF; contribution strategies that make the most sense and motivate people to save; retirement strategies that overcome the fear of running out of money before one dies.
3. Transforming the management of professional services. Already emerging in auditing is the idea that the system is tracking the conduct of the audit. Which staff are more efficient and why. Are corners being cut resulting in high risk of error? Are reviewers missing things? These systems have the potential to significantly reduce error and lift performance.
I get excited about collaboration. The idea that more than one person can share and work with the same data at the same time. With Google Docs, 200 people can be editing the same word document at the same time. Scary thought, I know, but when you realise the system is tracking exactly who did what, then it’s not as scary.
Imagine working on a piece of advice and enabling your client to view and comment on it as you’re working on it. Also a scary thought– do you really want your client seeing your draft? But think about it in another way: it could be highly efficient.
What would happen if your client is able to add their own comments such as 'I don’t understand this'; 'I’m uncomfortable with this suggestion'; 'Is this idea worth thinking about?'. Surely the advice that you finally produced will be more tuned to your client’s needs and expressed in a way that a client understands. In the world of some innovative law firms, these concepts are already being used to enable clients to control the approach taken to a matter or to cease litigation entirely if the client perceives the change of success as being too low.
And let’s not forget mobile and data visualisation. Mobile provides instant access and, unfortunately, an instant response is always demanded (even when one is in the middle of Game of Thrones episode). Harnessing mobile technologies to take client services to a whole new level is going to be a challenge in the years to come. One response will be brought about by data visualisation – the ability to provide insights with multimedia, so that people can quickly understand. How will the professions respond to that? Will we need creative types to help us do that?
It’s all too easy to ignore these changes. When at PKF and we first developed our SMSF admin software I was told quite emphatically that I was wasting my time – that there was no need for such software and that a traditional accounting system was all that was needed. Fortunately, some brave early adopted bought the first version (I actually named it version 3.7 in the belief no one would buy version 1.0) and, of course, now it is mandatory category of applications across the SMSF world.
So now is the time to explore these technologies. For example, blockchain has the potential to revolutionise transaction settlement. How much do you know about it? We need to learn and experiment. Watch some YouTube videos of IBM Watson to understand where big data and data analytics is heading. Run your own experiments to trial collaboration with your clients. Think about how you can participate in crowdsourcing of advice on social media. Never has there been a time with so many opportunities. Unlock your Gen Ys to grab hold of them and take your firm to a place no one can imagine in 30 years’ time. Certainly, where we are today seems like science fiction looking through a 1970s lense.