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Opportunity knocks for advisers in the SMSF sector

Vanguard | 30 July 2014


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Vanguard and Investment Trends released the results of the 2014 Self Managed Super Fund (SMSF) Planner Report today.

The report, which surveyed 489 financial advisers in April, demonstrates that trustees' satisfaction with advisers has continued to grow over the past 12 months, reaching its highest level since the GFC. Positive market performance over the last year contributed to some of the increase, but the research shows that advisers' technical expertise is also playing a greater role in driving satisfaction. Clarity around fees and charges remains a challenge.

The overall proportion of SMSFs using a financial planner stopped its six-year decline and stabilised over the last year at 41 per cent using one in the last 12 months.

With 54 per cent of SMSFs now open to tapping into advisers' expertise, a clear opportunity exists for financial advisers.These levels of interest are the highest observed since Investment Trends began tracking this in 2009.

Furthermore, a projected 286,000 SMSFs have unmet advice needs they are willing to pay for.

Over the last year, SMSF trustees have been placing a greater premium on diversification and planners have been responsive to this; a top priority for financial advisers specialising in SMSFs is diversification with 77 per cent (up 10 percentage points) now saying this is a key factor when selecting investments for their clients.


A clear trend emerging is the use of ETFs, particularly to gain access to international markets. Commenting on the report, Michael Lovett, Vanguard's Head of Adviser Distribution said:

"These findings demonstrate the significant opportunity professional advisers have to expand their service offering in the SMSF sector. The willingness of SMSF investors to engage with a financial adviser continues to increase, particularly around unmet advice needs such as inheritance planning and protection of assets against market falls.

"While there is a strong message here for advisers around how they can enhance their value proposition with SMSF trustees, that has to be kept in context with the strong correlation between satisfaction with advisers and investment market performance.

"The challenge for advisers is to demonstrate that the value of good financial advice is much broader than investment selection.

"The analysis from SMSF investors found multiple elements that contribute to their satisfaction with advisers – outside of investment selection. These include: technical expertise, tax expertise, quality of support staff and clarity of fees and charges.

"The research also found that the number of specialist SMSF financial advisers is growing and Vanguard welcomes the increasing focus on higher education and professional standards in the SMSF advice sector," said Mr. Lovett.

Opportunity knocks

Cost of advice remains an issue for investors. Despite this, when specifically asked how they would prefer to receive help from an adviser, compared to 2013, a growing proportion of total SMSF investors (12 per cent up from 7 per cent last year) say they would prefer face-to-face communication even if it will cost more. A larger proportion, 19 per cent, is open to receiving advice over the phone and online.

When it comes to unmet advice needs, SMSFs are seeking ways to protect assets and income against market falls. That may not be surprising considering their demographic, and with the GFC still a recent memory – but it is advice which SMSF trustees are prepared to pay for and suggests the opportunity for advisers to have conversations based more around risk control than just portfolio returns.

The most common areas of unmet advice needs advisers can add to their total value proposition according to the trustees surveyed include:

  • Inheritance and estate planning (27 per cent of those with unmet advice needs);
  • Age pension and other entitlements (27 per cent); and
  • SMSFs pension strategies (24 per cent)

SMSFs who say they have unmet advice needs are prepared to pay up to $2,500 per annum for advice that meets their needs, on average, up from $2,000 last year.

The power of past performance

The 2014 research shows advisers and SMSF investors are increasingly focused on diversification. Over a quarter (27 per cent up from 14 per cent) of SMSFs who made substantial asset allocation changes did so to increase diversification and concurrently 77 per cent of SMSF planners note diversification as their top investment priority up from 67 per cent.

Over the past 12 months, planners estimate they placed 31 per cent of new SMSF inflows in international assets, up from 25 per cent in 2013. They also expect this will grow to 35 per cent over the next 12 months.

"Diversification is critical in managing volatility and giving investors the best possible chance of long-term success. The increased focus on international exposure is valuable in a diversification sense however, we are cautious when key international markets like the U.S. sharemarket have had such strong performance in the past year and hope that advisers and investors are taking a long-term view.

"Ultimately, the value of a financial adviser is in their role as a behavioural coach. This involves understanding clients' risk appetite and setting the strategic asset allocation for a client's portfolio," said Mr. Lovett.