Smythe Financial Management managing director Ben Smythe recognised a business opportunity regarding the incapacity of SMSF trustees when he first entered the sector 15 years ago. He tells Darin Tyson-Chan he’d like to see more viable options to address this matter today.
How did you come to be involved in the SMSF sector?
In 1998, I started a superannuation trustee business that looked after small Australian Prudential Regulation Authority (APRA) funds called Australian Superannuation Nominees. At the time, excluded funds were in existence and they had just created the concept of a self-managed fund and a small APRA fund. Our business was an administration business that provided self-managed super fund administration services. So that’s how I originally fell into the business.
What motivated you to start that business?
I noticed a lot of SMSF trustees were getting older and hadn’t thought through what would happen in those circumstances. So I saw an opportunity to offer an approved trustee service to SMSFs that transitioned to small APRA funds. It was a real opportunity at the time as we also looked after non-residents, individuals who had gone bankrupt and other groups of people.
You showed a lot of vision to set up that business. What happened to it?
The business lasted for five years, but unfortunately it coincided with the period when APRA brought in RSEs, responsible superannuation entities. At the time the regulator wasn’t keen to have small trustee businesses in operation. In effect APRA told us they weren’t interested in licensing our business, so we sold it to Tower Trusts, which had a small APRA fund business as well. So the business was around for five years, but wasn’t big enough and didn’t get to a stage where it had critical mass.
You’ve started another business. How did that happen?
When I left Australian Superannuation Nominees, I worked at Citigroup in its private clients area and spent 18 months running the financial planning division. I was working with brokers and effectively my job was to help them provide better value to their clients working through areas like superannuation and tax. It gave me a really good insight into the advice industry. I went from there to Heffron SMSF Solutions, where I worked for close to eight years, and that gave me further exposure to the provision of financial advice. During this time I recognised it was an industry struggling to deliver a quality service to clients, so much so the level of engagement is quite poor. So I saw a great opportunity to provide independent advice for individuals, for SMSFs trustees and that’s really what motivated me to go out on my own.
What services do you provide now?
I target two distinct groups of clients. The first is wealth accumulation clients that includes individuals who are starting out, right though to people who have paid off their mortgage looking for the next thing to do, right through people preparing for retirement. SMSF trustees make up the other group I target who are typically looking for a second opinion, a sounding board sort of relationship involving someone independent, someone who is not going to sell them a product, someone who’s not going to put them into a platform nor a managed fund.
Typically what’s the type of advice your SMSF clients are seeking?
It’s a project-style offering with an annual review face-to-face. Most of them do enjoy a face-to-face annual meeting, but typically the initial engagement will be around almost like a health check. So it’s like a project where, for example, we carve an investment strategy. In a lot of cases they come for that; they might just want an asset allocation overview, but typically they’re not looking for any investment advice. So what we provide is like a scaled health check in a way.
Are there any recurring strategic themes?
I would still say I’m surprised how few trustees understand the rules around pensions. For example, I still see clients over the age of 60 and haven’t started a pension. It’s quite common. It means either the accountants are not telling them what to do or they are not knowledgeable enough themselves. In general, I think the relationship with their accountant is at the compliance end because I often ask them whether they get advice from their accountant and they reply their accountant prepares their accounts. So a lot of trustees are unfamiliar with what they should be doing in terms of their retirement and I think that’s sort of a surprising theme.
So in general, what’s the level of trustee knowledge like?
It’s mixed. In general I’d say most trustees are aware of what they’ve got in regard to the super fund, but they’re not necessarily familiar with the responsibility they’ve taken on. They’re relying on a third party to keep them out of trouble in most cases, but they’re generally fairly self-directed in terms of the investment space. So I would say that’s very much where we sit in terms of the space. It would appear a lot of them have been directed to set up an SMSF on the back of an investment opportunity with the ability to have control. That’s the still the common theme.
The ATO can now order trustees to undertake further education about their role, but do you think there’ll come a time when trustees take these courses voluntarily to improve their knowledge?
I would like to say yes, but realistically I would say no because my experience with education and SMSF trustees tells me unless you have an investment link to that education, the level of interest is quite low. You might get some traction if the course has ATO approval; a level of credibility that may lead people to perceive it’s ATO training and it’ll give them some insight. I could see that having some appeal. But purely running education on a voluntarily basis is pushing it.
How do you see the new licensing requirements for accountants playing out?
I think it’s a very interesting space. My two cents is that those accountants who are serious about the SMSF space are licensed. That means they have done something or have set their business in partnership or joint venture with a financial planner now. Those who haven’t done anything will wait until 11.59pm on the 30th of June 2016, and if they do something, will do it begrudgingly or even ignore it completely. From my business’s perspective I have had inquiries from accountants as to whether I could license them. But that’s not an option we’re necessarily considering. I think it’s a massive opportunity in the industry and accountants are in an ideal position, but they’re risking losing that position to someone who seriously takes this opportunity.
Gearing in super continues to be a topical issue. Do you receive any queries about it?
I probably field one question about it in every 10, so it’s not a significant level of inquiry at all. People who are trying to market themselves more aggressively, and are obviously in that space, would be getting a lot more interest on this subject, but it’s not something I would chase.
What’s the most significant development you’ve seen in the SMSF sector?
I would say the professionalism of the practitioners for sure. The sector has become a legitimate area within superannuation because of its size. SPAA’s done a very good job in making this happen because it has become a reputable voice in the eyes of the government. But the level of professionalism now associated with the sector is very impressive. When you look back to when SMSFs were excluded funds, it was really a boutique part of the industry, but its size alone has really brought it into a position of credibility in terms of a legitimate superannuation option for the clients.
What’s the one thing you would change about the sector?
I still think there’s a missing piece when it comes to the ageing demographic and that is what happens to the SMSF when it can no longer function. I’d love to see a resilient small APRA fund market providing the ability for a trustee to continue to operate an SMSF in its guise for the remaining spouse. At the moment changing from an SMSF to a small APRA fund is enormous and it means coming under the scrutiny of a prudential regulator that doesn’t really understand SMSFs.
What’s the biggest challenge facing SMSFs in the next 12 months?
It appears from the interim [Financial System Inquiry] report from David Murray the industry has been given another clean bill of health. So I see the biggest challenge to the sector will be the other areas of superannuation. Other funds are starting to offer services to their members that are equivalent to SMSFs. With this in mind, I think the sector might have some challenges in articulating or explaining the difference between what it’s offering and what the larger superannuation funds are offering.
