Who's winning the SMSF advice race?

Vanguard | 24 July 2013


Vanguard and Investment Trends release new research examining the success and challenges financial advisers are experiencing in the SMSF space.

Key points:

  • Advisers thriving in the SMSF sector say that their value proposition to SMSF investors, their relationships with accountants and their ability to do administration in-house are key success factors.
  • Key challenges for SMSF advisers include concessional cap changes, dealing with unsuitable SMSF set ups and dealing with compliance aspects of SMSFs.
  • Asset allocation decisions focused on generating income and franked dividends.

SYDNEY 24 July 2013: Vanguard and Investment Trends released the results of the April 2013 Self Managed Super Fund Planner Report today, examining how Australian financial planners interact with Self Managed Super Fund (SMSF) investors.

The report, which surveys more than 400 advisers, reveals that some advisers are racing ahead of the pack in servicing SMSF investors, while others struggle to demonstrate their value. The report groups feedback from planners into two groups - SMSF specialists who service 20 or more SMSF clients and SMSF generalists who service fewer than 20 SMSF clients.

Planners in general have been struggling somewhat in the SMSF space over the last few years, unable meet the growth they have been anticipating for the past few years.

However, some planners have been more successful than others. There are now more planners who fall under the SMSF specialist category (25 per cent, up from 23 per cent last year), and these planners derive half (49 per cent) their practice revenue from SMSFs, up from 44 per cent in 2011.

In contrast, SMSF generalists have not found their place in this booming market yet, with their revenue from SMSF clients remaining steady at 19 per cent over the same period.

Advisers who said they are succeeding (find it easy to attract and retain SMSF clients) were more likely to say their value proposition resonates with SMSFs, they work closely with (or in) accounting firms and do the administration for SMSF investors in house.

Planners are charging on average 17 per cent more in upfront fees than last year for their service and 5 per cent more for ongoing fees.

When asked about their single biggest challenge to servicing the SMSF sector, specialists cite falls in concessional contribution caps and keeping fees competitive as their greatest hurdles. Meanwhile, SMSF generalists' challenges relate to relationships with accounting firms and finding clients.

Commenting on the report, Michael Lovett, Vanguard's Head of Adviser Distribution said:

"It's clear from this report that there continues to be a large and growing opportunity for advisers servicing the SMSF space. Those advisers that are specialising their businesses, demonstrating clear value propositions for clients and working well with accountants and other SMSF influencers seem to be the clear contenders in this sector.

"There is a strong message for advisers who want to excel in this sector to safeguard their practice and add immense value to investors by spending more of their time looking at areas of unmet advice to their clients.

"Our studies show that for advisers, creating this point of difference in their practice value proposition can ensure they present a more enduring model, particularly in this new fee for service world which the Future of Financial Advice reforms have introduced".

Asset allocation

SMSF planners estimate they influence $145 billion of SMSF assets.

There was a marked increase in the flow of money into investments other than cash following the rise of investor confidence at the start of 2013.

Asset allocation strategies differ between specialists and generalists, with specialists tending to allocate more to direct shares - 29 per cent of new SMSF investments versus 23 per cent by generalists, and less to active managed funds. Specialists project direct shares to grow to 32 per cent of new SMSF investments by 2016.

SMSF specialists also had a greater level of ETF usage than generalists (5 per cent versus 3 per cent).

Advisers said their top priority when selecting investments for SMSF clients was the availability of franked dividends. The lack of dividends and income from international shares investments was the biggest barrier to their allocation to international assets for SMSF clients.

Use of term deposits was similar between the two groups of planners, with specialists allocating 16 per cent versus generalists at 15 per cent, and both expecting to reduce this below 11 per cent by 2016.

Both groups say they currently allocate about 30 per cent to cash and fixed income assets, but expect this to fall by 2016.

More than 20 per cent of specialist SMSF advisers say they need a better range of annuities and longevity protection products than are currently available, while generalists said that they need lower cost platforms to better service this client group. Access to emerging markets and Asian countries was cited as a gap for planners in this market.

Unmet advice needs

218,000 SMSF investors still have unmet advice needs that they are willing to pay for, which represents an opportunity for all advisers. More than a third of SMSF investors who were willing to pay to fill the gaps in advice said that inheritance and estate planning was the biggest unmet area.

In addition, borrowing within the SMSF, buying distressed assets, buying investment property and tax planning were all significant areas of unmet advice needs.

Accountants versus financial planners

While some advisers have strong working relationships with accountants, two in five report having had some issues involving accountants where SMSFs were being established for clients inappropriately.

Nearly half (48 per cent) of advisers said that the regulatory reform on limited licensing for accountants will have a positive impact on their overall business income and 34 per cent expect it will increase their SMSF client base.

SMSF specialists were much more likely to work for an accountancy firm (27 per cent) and slightly more had several accountants referring work to them.