Jamie Williamson in the May 1st 2017 Edition of Financial Standard referenced research from the Comm Bank SMSF Report that the Need for SMSF specialist advisers is growing.
The research broke the SMSF investors/trustees into 4 sectors
The Outsourcer was one sector at 13% of SMSF’s and they are generally people that have low confidence in their own ability to make financial decisions and are willing to spend more on advice. It would have been good of the survey could have asked the obvious next questions. Why do you have a SMSF in the first place ? What was your key factor in the decision to set it up ?
It is certainly true that a lot of people are setting up SMSF and it would be interesting to see any published stats as to how many are being closed down on an annual basis.
The 3 other sectors of SMSF investor were
Coach Seekers (22%) who want to learn and are happy to pay to have someone teach them, the self directed investor (30%) and the Controller (35%)
The Controller is not going to engage an adviser as they want to do what they want which could be quite different to what an adviser recommends.
The self directed investor wants to do what they want eg self directed. What if they have an idea about buying a country property for the family holiday each year ? Will they respond favourably when the adviser counsels against that strategy ? What level of fee can an adviser charge to take the risk of potentially defending an action if the ATO makes a fund non compliant when the trustee acted against the advice of an adviser ?
At that point the Trustee will claim that the adviser should have advised them better and MADE them do the right thing.
There is plenty of consumers wanting advice and recent law changes mean advisers will see less clients. Why would an adviser choose to specialize in an area where the consumers by their actions have told you they dont want an adviser as a starting point? While things are going well in the SMSF the consumer will continue doing what they are doing blissfully unaware of any contraventions of the law that they are committing. When the brown stuff hits the air conditioning they will want someone to clean up the mess, the tax penalties could be high and they will be sensitive to the adviser fees then just as they have been before.
The survey is correct. There will be growing issues in the SMSF sector and people will be required to assist.
It does not follow that it will make good business sense for a financial planning business to specialise in the SMSF sector when you consider the risks involved.
Under the law the Trustee of the fund is responsible for the fund. There would be less than 5% of Trustees of SMSF’s that fully understands their responsibilities and obligations to the members of their fund. They normally dont care saying we are the members and we wont complain however that is not how the law sees it.
When a Trustees become aware of an obligation that has been breached they then try to pass that responsibility to the adviser and the advisers best defence is not to get involved in the first place.
I can see that a lot more advisers will be needed to assist in this huge area in the future. I know a lot of advisers will enter this space due to the lure of the billions of dollars invested however i dont know how many will remain in the area long term when you allow for the risk reward of the sector.
The clients have all the reward in the SMSF sector which is how it should be however in relation to the risks they are taking, with the strong assistance of the regulators, the risks are being passed from the Trustees to the advisers which will not be a sustainable business proposition for most advice businesses long term.