Phoenix Private Wealth Management director Andrew Chan was drawn to the SMSF sector by its diversity and technical nature. He discusses with Darin Tyson-Chan the importance of having sound technical knowledge and how communicating with other professionals makes servicing the space difficult.
How did your involvement in the SMSF sector come about?
Financial planning is all about being innovative and getting the right solutions for the client and it’s not a one-size-fits-all approach. A lot of the financial planning I’d seen when I used to audit advisers was very basic, like they only had one tool in their toolkit, like if I’ve only got a hammer, every problem becomes a nail. But when we talk about financial planning we’re talking about the potential universe of solutions out there. Back then SMSFs were rather new at the time, but they allowed me to have that many more strings to my bow in dealing with business owners, property and dealing with an overall asset allocation where clients had previously had very little control. Not everyone has the same asset allocation preference, so in servicing SMSFs I was really able to cater for those clients who had a particular preference. That’s why I got into the SMSF space because it was an innovative tool. I was also drawn in by the technical aspect of the sector and how you really have to know your stuff to set one up. Without the requisite knowledge it can be a dangerous tool, so as much freedom that there is to do well out of it, there is just as much freedom to do poorly. So it’s about getting the right advice and I thought there was a gap in that space.
The technical aspect of SMSFs was attractive to you, but how did you get that type of knowledge?
My background is in investment banking and compliance risk management, so I used to build compliance frameworks. That means you’d be reading legislation and policy and getting an understanding of the Corporations Act, the Superannuation Industry (Supervision) Act, and ATO regulations. So my background has allowed me to easily understand what the requirements are and what is considered best practice.
How important is it to possess good technical knowledge?
Having good technical knowledge and being a good technical adviser means you can understand all new arrangements, like those contained in the budget, and rearrange a client’s strategy and tailor it in the most effective manner. It also means you can look ahead to say these are the issues that might apply, you need to be aware of them, please let me bring them to your attention and if you’re time poor, let me make it easy for you to put that into place.
You started your own practice recently. What made you do that?
The reason I wanted to start my own practice was there are not many firms that can say they were FOFA (Future of Financial Advice) compliant from the beginning. I saw the FOFA reforms as a way for the government to bring a more compliant structure to the industry. I found starting the business and for it to be FOFA compliant at the beginning would make a statement. So we don’t take volume bonuses or commissions on investment products and we haven’t from day one and that’s a unique value proposition not many advisers can claim. We’ve had our own Australian financial services licence from the start and while it’s probably not the most cost-effective decision from a business point of view, it’s a price we’re prepared to pay because the engagement of the client has to be what’s right for them from the very beginning, not what’s right for us.
What services do you offer for SMSF clients?
Anything to do with SMSFs we can do; it’s just a matter of how appropriate it is for the client. So we cater for things like instalment warrant arrangements, property purchases, moving assets in or out of the fund, pensions, investment management, and compliance training for trustees. We provide all of these services because if we didn’t, we couldn’t ensure the SMSFs we advise would be compliant and we’re not in the business of giving advice to non-compliant funds. We offer fund establishment services, but sometimes we work with accountants who perform this task. For us it’s never about the product, it’s about us being there and being able to support the fund and its financial plan.
Is there one particular service you offer that is more popular than the others?
Risk management is in big demand because it’s now a requirement by law that people need to consider this subject before they set up an SMSF. So what we’re finding is a lot of accountants are realising this, as well as being conscious their carveout for giving advice on SMSF establishment is coming to an end. It means they’ve realised they might have to work hand-in-hand with a financial planner to provide that advice. They need to find a financial planner who is able to understand their strategy that may involve a number of different entities and structures and perform an initial review and consultation to provide a reasonable basis for setting up the fund.You have an SMSF Specialist Advisor accreditation from the SMSF Association.
How did you find that process?
It was fantastic and I would consider it the pre-eminent designation for an SMSF specialist. Many advisers have achieved this designation and many have failed and what I like about it is the rigour behind it. What defines an association is the amount of education they put back into their members and out of all the other professional bodies involved with SMSFs, they do it the best.What effect has this year’s budget had on your clients?Because we have such a strong relationship with our clients and we’re proactive in our dialogue, they’ve been rather calm about it all. They understand there are changes, but they also understand we’re up to the task of meeting those changes. If you ask me about the feel on the street outside of Phoenix Private Wealth Management, it’s one of concern because people are realising with residential property prices as they are and having to pay off those properties in 20 or 30 years there won’t be much time left to put money into superannuation. And with the new restrictive contributions caps a lot of families are concerned that if they’ve changed it now, how will they be sure they won’t change it again.
What’s the most difficult thing about servicing SMSF clients?
Different professionals have different standards when it comes to SMSF management. It makes communication between professionals very difficult. For example, our business runs at a tempo where we deal with all of the client’s issues within a day. Other professionals have a different tempo where they might aim to address issues within a week. Attention to detail and record-keeping also play an important role. As a firm we help our clients store a lot of the information, but if other professionals don’t provide that service, when tax time comes around it can be a really difficult process. This is particularly true with fund establishment when having to determine what the eligible start date is and eligible service date. These are not big considerations when setting up the fund, but what happens when members need to draw a pension and what happens when a death benefit has to be paid and that information has not been passed on. This makes the process difficult.
What’s the most significant change you’ve seen in the SMSF sector?
It’s the changes in 2007 and two changes in particular. One being the tax-exempt status for pensions and at the time there was a big rush to put money into superannuation. The second was the government’s acknowledgement that Australians aged 50 and above didn’t get the chance to put money into superannuation in its current form so they were allowed to put $100,000 in and that was the right age to allow people to put that kind of money in. As a result, the superannuation industry took off.
If you could change one thing about the SMSF sector what would it be?
It would be to separate making changes to superannuation as part of the federal budget process. Sometimes if you legislate focusing simply on the budget, you aren’t able to cater the vehicle for real-life circumstances with what life throws at you. I really feel for clients and the potential problems they might have in the future. Superannuation is a great vehicle that has been created by government and for it to work, changes and measures need to be thought about in real client life terms rather than simply looking at balancing a budget.
What’s the biggest challenge facing the sector in the coming 12 months?
I think it’s robo-advice. Robo-advice and traditional advice are two different streams and advisers need to choose where they’re going to sit. Professional indemnity insurers aren’t liking what they see with robo-advice and those advisers going down that path need to be really careful and ensure their dealer group is prepared to provide them support to go down that path. So we’ll have advice at the lower level being commoditised and advice at the higher level taken to a greater level of personalisation and technical excellence. So my concern is that there will be no middle ground.