SMSFs have historically had to pay twice for administration and other costs to effectively unwrap wrap assets, but these costs can finally be removed.
In the 1980s, the Asgard master trust was launched to provide financial planners with a simple one-stop shop for managed funds. Realising marketing power was controlled by the distributors – the financial planners – the master trust was designed to pool the investments of individual investors and thereby negotiate institutional or wholesale rates for funds management.
Platforms and wraps offer the convenience of consolidated investment and tax reporting included in management fees. But for SMSFs, most of which invest outside platforms – such as the $99.2 billion they invest in commercial and residential property, according to the ATO – to administer their assets outside wraps and platforms, they pay the platforms to do it again.
At tax time, the SMSF’s administrator gets a consolidated statement for all their assets on the platform, which they then need to unwrap again to record each asset and its tax components.
Sourcing this data can often mean screen scraping managed fund websites or deriving cents per unit (CPU) values from direct investment assets for other clients. All this adds up in time and cost. Often the data has passed through the fund’s unit registry to the platform’s sub-register, before being applied to the beneficial SMSF account. Each system has rounding conventions and human touch is still inherent in the processing.
So what are the new opportunities? Firstly, some of the SMSF software providers are taking the initiative to gather the dividend and CPU managed fund distribution data and provide it to their users as an alternative to the accountant searching the web. Other fund managers are supporting SMSFs by providing this data electronically. This goes some way to reduce the accounting costs in unwrapping the wrap statement.
Secondly, there are managed account platforms that provide greater asset holding transparency for the SMSF, allowing for asset-level accounting alignment.
In both these cases though, the SMSF is still paying twice for administration, as well as, in many instances, indirect costs for product manufacturing and administration.
So how can an SMSF avoid this double admin fee? In the independent advice space, there was until recently only a few ways of operating off platform. SMSF holders or advisers could put their investments together manually – an exhaustive process involving extensive manual inputs, Excel spreadsheets and Access databases. Alternatively, advisers could install vendor technology to operate the portfolio construction and market execution. The latter relied on deep pockets and skilled operational staff to maintain the service.
With the rise of fintech, new technologies have come to the market that provide independent financial advisers off-the-shelf solutions to automatically construct, rebalance and report on SMSF portfolios. Data feeds are now more common, allowing for the SMSFs assets to be mirrored on both the portfolio and the accounting software.