Navwealth director Craig Banning entered the SMSF sector over a decade ago because he spotted it as a growth opportunity. He talks to Darin Tyson-Chan about the importance of being a specialist and how technology will change the face of the SMSF industry.
How did you come to be involved in the SMSF sector?
I decided to get involved with SMSFs in 1999 because of my client profiles that were trending towards more affluent clients. So I started off with all my training with Grant Abbott. I have been involved with SPAA (SMSF Professionals’ Association of Australia) ever since that started, so it goes back a long time when SMSFs were not as popular as they are today.
What specifically made you focus on SMSFs?
It was a couple of things. I recognised it was a growth area of the industry. So back then I thought I’ve got a long way to go in my career, I need to be part of a growth industry. Also, our client demographic was starting to demand advice that was beyond what was considered normal. So it was a bit of a client demand and a bit of me wanting to position our business for the future really. I always thought the sector would grow, but I didn’t think it would grow to the size it has.
How much importance do you place on being an SMSF specialist?
I don’t think you can be a generalist adviser across everything anymore. It’s just too hard. So I think the whole financial services industry will go down the same path as the medical industry did where you might have a GP and then you’re referred off to various specialist advisers. And we try to do that in-house where we can and be the one-stop shop for lending and accounting, planning, wealth management, but when we can’t be great at something, that’s when we outsource to legal or estate planning or whatever it might be.
What difference has being a SPAA member made to you?
SPAA provides a great source of training. What I mean by that is that SPAA brings together a variety of disciplines servicing the sector. For example, at the national conference I can find myself sitting next to an actuary and having a conversation with them. I wouldn’t want to go to a SPAA conference if there were only financial advisers or only accountants in attendance. The fact that the association is blending all the professionals together is what makes it so special.
Are you seeing the SPAA SMSF specialist accreditation making a difference with clients?
Not yet. I think it’s still slow as far as the end consumer, the client recognising it. But we talk about it with every client, so they will start talking about it.
So what services do you offer your clients?
We offer strategic advice, investment advice and SMSF administration services. We use Class Super as the back engine for our administration service and I think technology’s one of the most fascinating developments for superannuation, and particularly SMSFs. I remember, and it still goes on today, where out in the marketplace there was a lot of shoebox accounting. Just to start a pension, when there are numerous taxes to take into account, it would take us some months to obtain the information if the client was using shoebox accounting. With our clients you know it’s all online, they get a login and it’s up to date. So I could bring up the client’s fund now, tell them their tax components and that is just amazing. And that is going to keep changing. So I think technology is a huge game changer in accounting and financial planning and administration itself. Some service providers think outsourcing to places like the Philippines is the way of the future, but we think technology will make the real difference in the end.
How are you finding the general standard of trustee knowledge?
We put it into two camps. The individuals that start an SMSF with us get an enormous amount of education and training before they become a trustee. For example, we just had a client audited by the ATO (Australian Taxation Office) where the regulator said “you’ve just set up a fund, we need to conduct an audit as to why you set it up and what you know about running an SMSF”. It was quite interesting. I wasn’t worried at all about the situation because we’d given him the books, we’d talked about it, and all the funds we set up are done for a reason, so it’s not a case of everyone who comes through our door gets one. Only the right people get an SMSF. So I think there’s that camp, the well-educated camp, and then there’s the extremely uneducated camp who may have set their funds up online. So they haven’t had the adviser contact or support. But the education we provide clients is expensive. There are probably six hours of meetings before it’s finished. Now, that’s not cheap obviously. So, those clients are well educated because of a great process, but that’s why our minimums are a lot higher than the minimums you see in the marketplace. Our average fund has $1.5 million of assets in it and we wouldn’t even consider starting one under $500,000 unless there were extraordinary circumstances.
Are there any obvious themes emerging regarding the type of advice being sought?
I think there are a couple. Interestingly, the first theme I’m noticing at the moment is the investments of the fund. If I go back five years, everyone was so nervous about the global financial crisis and they were quite happy to have 75 per cent of their funds in cash. But since then international markets have experienced a big rise and most SMSF have relatively low exposure. So some trustees are now grappling with the notion of allocating more of their portfolios to overseas markets. It’s the first time I’ve seen that happen. The second thing we’re getting asked a lot for is pension advice. I think now there’s so much information out there suggesting if you’re over 55 maybe you should have a transitional retirement pension. As a result, we’re getting people coming along saying “I’m 58 and I don’t know if I should have one or not”.
How difficult is it to source new clients?
Our new clients all come from referrals, so we don’t really advertise for clients. All our clients are referred from our existing clients or our advice partners. In the advice partners space we have stockbroking, legal advice, estate planning advice and property advice. All of these external parties to whom we refer clients often refer clients to us. And that’s pretty much how we’ve built the business and probably how we will stay building it. I don’t see us ever advertising to attract clients. It’s just not that type of business.
What’s been the most significant challenge for the sector to date?
Contributions limits have been very difficult and a lot more complicated than anyone thinks they are. A lot of people making really large non-concessional contributions and bringing forward the contributions caps have been trapped by that. So the recent changes in the budget covering this area have been very welcome because lots of trustees have been caught by really difficult legislation due to genuine mistakes that have occurred. So I think that’s been the most challenging thing.
If there was one thing you could change about the sector what would it be?
I’d like to make it a little simpler. A good example of that is the overseas residency rules. We’re now living in a world where people travel all the time and the rules and options they’re faced with regarding running their SMSF are far too complex. It’s got to the point where if you ring three different advisers on the subject, I think you’ll get the application of three different rules and it shouldn’t be like that really. We need to address this, so I think there are some things we can do in the sector to simplify it.
What’s the biggest challenge the sector will face over the coming year?
It’s the use of technology. We’ve been on a huge journey over the past 18 months to ramp up the technology incorporated in our offering. There are a lot of accountancy firms out there still using the shoebox method, there are some that have moved to systems like Class Super, but still don’t provide clients access to the system, and there are some really good administrators around that offer an incredible package.
So small suburban firms have really got to step up now to keep up with the big administration platforms. So I think for all the small firms this is a big challenge. We don’t have millions of dollars to invest in technology, but luckily now there are some great off-the-shelf platforms available. But you’ve still got to embed it into your business and build processes. So I don’t think the advice itself will be less or more, but I think the technology behind it will be very important.
