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Five critical strategy questions

There are five crucial questions clients need to be asked to allow a fund to truly achieve its goals.

There are many strategies available to SMSF trustees, but Tracey Besters writes there are five crucial questions clients need to be asked to allow a fund to truly achieve its goals.

It is true strategies are the cornerstone of the SMSF, and if you have SMSF clients, then it is important that you are considering what else you could be doing for them. Strategic advice is something trustees need and want, particularly in light of the new super reform measures. By offering strategic advice your firm will benefit from increased revenue opportunities, increased client engagement and a point of difference in the marketplace for new clients.

But the two questions I am often asked are: ‘Where do I start?’ and ‘What else can I do?’ My answer always is to make sure you have dealt with the fundamental strategies that every SMSF should consider.

Start by asking each of your SMSF clients five questions. The five questions will do the following:

  • engage your clients in the fundamental (and must-do) strategies,
  • open up new revenue opportunities for your firm,
  • show your client you are thinking and planning ahead, and
  • help to attract new clients by standing out from the crowd.

So what are the five questions to ask?

  1. If you were unable to make decisions about your SMSF, who would you like to make them for you?If you were to suffer an injury or illness, would you like the SMSF to provide for you?
  2. On your death, what do you want to see happen with your SMSF member balance?
  3. How concerned are you if your SMSF account balance doesn’t go where you expected on your death?
  4. Do you want to pass on your SMSF structure to someone else on your death?

Let’s look at each question and why it is important.

1. If you were unable to make decisions about your SMSF, who would you like to make them for you?

This question is dealing with control, a reason many of your clients established their own SMSF in the first place, so they could have control over the choices and decisions. But what if their mental capacity were compromised? What will happen to the decision-making elements of the SMSF?So it is important to understand who the member would like to step in should they be unable to make decisions due to their mental capacity. And then the strategy, that we have termed ‘control of fund’, is to ensure the governing rules will allow that person to become a trustee and that the necessary paperwork is in place, such as an enduring power of attorney.

2. If you were to suffer an injury or illness, would you like the SMSF to provide for you?

This question deals with temporary incapacity and the desire of the member for the SMSF to assist in that time of need. The SMSF is allowed to provide a temporary income stream in the event of incapacity or illness to replace the current income of the member. What we need to understand is whether the member would like this to be enabled as a protection mechanism should something happen to them. This is particularly important should the member not have any income protection insurance or their monthly living expenses are higher than the amount they are likely to get from the income protection policy.

The strategy that sits behind this question, which we have termed ‘protect yourself’, is how to fund the temporary income stream to top up the member’s income. A temporary incapacity income stream can only be funded from certain sources and cannot simply come from the total of the member account balance. Unless the strategy is in place to build up the sources that can fund the income stream, it is likely there will not be sufficient amounts available when your client needs them most.

3. On your death, what do you want to see happen with your SMSF member balance?

This question is about estate planning and estate planning within the SMSF is not simply just about completing a binding death benefit nomination. Based on my discussions with hundreds of SMSF trustees, this area causes much confusion and the introduction of the transfer balance cap is adding to that confusion. The question is about opening up discussion on who they want their benefits paid to and are there any preferences in how that should happen. Once we understand this, we can then work through the strategy, which we have termed ‘protect your family’, to see if their wishes are possible and how best to implement their wishes.

4. How concerned are you if your SMSF account balance doesn’t go where you expected on your death?

This question deals with whether or not to have binding mechanisms in place for the estate planning wishes. Some members are not overly concerned about where their balance will end up, while others are deeply concerned. The strategy, which forms part of the ‘protect your family’ piece, is about considering the binding mechanisms and ensuring those mechanisms are valid. This is particularly important for blended families or where there is a concern around disputes that may arise.

5. Do you want to pass on your SMSF structure to someone else on your death?

Although technically we cannot pass on an SMSF structure, this question is designed to gauge the interest of intergenerational structures and whether a child member might be introduced into the SMSF at some point.This is also important for exit planning – something that is lacking from a strategic point of view. My view is that the exit plan should be considered when the SMSF is being established, but this doesn’t happen very often.

Now that you have the five questions, what will you do with them? And how can you incorporate them into your firm?
Firstly, is it vital you are familiar with the strategies (or outcomes) that sit behind the five questions.

These are:

  1. control of fund,
  2. funding a temporary incapacity payment,
  3. estate planning,
  4. intergenerational SMSFs, and
  5. exit planning.

Next you will need to think about the process of how you will educate and engage with your clients that will best work for your firm. There are three ways you could do this.

The first is a one-on-one process, that is, to work with each client through the questions, explain the strategies and then engage them to undertake the strategies. This will be repetitive and time consuming.

The second is a more leveraged process. You will still ask the client the questions, but will then educate them on the strategies using a series of materials, such as videos, seminars, webinars or written fact sheets and reports. Leverage your time using prerecorded and written information.

And the final way is an ad-hoc process. Yes, I understand that is an oxymoron. The ad-hoc process is to only raise the questions as the topics come up. This is not proactive and, depending on the client circumstances, may be too late to implement any changes to benefit the client.
Once you have decided on the process, you then ask your SMSF clients the five questions.

Review the answers provided and then assess the need and order of priority for the strategies. The first stage of the strategies is to check their current SMSF structure, governing rules and documents to see if what they want can be achieved – if yes, great, let them know. You can charge for this checking process as it will give some certainty to your client. If they cannot achieve what they want, you will need to provide advice and make some recommendations as to what needs to be done to get what they want.

Then implement the changes required and repeat in a few years or when circumstances change.

Unless you have ample time on your hands, I am not a fan of a one-on-one process, so to me the leveraged process is the desired approach. Below is how I would undertake a leveraged process using a sequence of emails and videos.

First, send an introductory email entitled “The five questions to ask yourself as an SMSF member” to all of your SMSF clients. Either have the clients respond to you with their answers or provide them with either an online or paper form to complete.

Then, over a period of five weeks (or a bit longer, depending on your time), send one email weekly to educate and engage the client on one of the questions. This could be via a video or fact sheet or both.

Include a call to action in each email for the client to book a meeting with you to discuss the next steps, which will be to engage them to put together the strategy or alternatively to attend an event – either a webinar or seminar, breakfast or boardroom lunch – where you will discuss the strategy further and educate clients on the need.

If the client books a meeting, your aim at that meeting should be to have the client engage you to put together the strategy, and not to give the advice. So you will want to have a list of things the client will need to consider or decide upon, after which your job will be to go away and work through the strategy elements to see if that is possible within their SMSF structure, and if not, what alternatives are available. Put together the advice being mindful of financial advice obligations.

And finally, implement the advice, prepare the necessary documentation and use your legal providers to prepare any legal documents.

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