One on one with…Darren James

MBA Financial Strategists director Darren James entered the SMSF sector to improve the practice’s service proposition for clients who were small business owners. He tells Darin Tyson-Chan how the recent super reforms have heightened the need for advice and his wish for better regulation of fringe players in the sector.

How did you get started in the SMSF sector?

Our business initially was primarily focused on corporate super and employer super funds and providing services in those areas. Then in 2007 we merged some businesses together and decided to take a change in direction, which was more down the private and personal advice side of things and a big part of that was looking at SMSFs as one of the offerings. We felt we needed to get involved in the sector to add value to what we were doing, so that was the key reason that got us involved in the sector.

So was there a particular motivating factor to provide SMSF advice?

For us our ideal client fits into this space for a number of reasons, one being the connection between SMSFs and small business. Especially in South Australia a lot of small businesses look to purchase the premises they want to conduct their business from and, of course, one of the benefits of SMSFs is a business premises can be held as an asset inside the fund and there are a lot of advantages in doing so. South Australia in particular is made up of a lot of small businesses, so providing SMSF advice fits well with that demographic. Also, certain estate planning and investment strategies can be done within SMSFs, but can’t be implemented elsewhere, and the transparency associated with these aspects is what our clients like and it fits in well with our brand from that perspective.

What services do you offer your SMSF clients?

We provide an end-to-end service from establishment to advising on the management of an SMSF. A lot of our work though has been in conjunction with other professionals such as accountants and lawyers, where they have set up a fund, but need assistance with things like the investment strategy or the structure of personal risk insurance or advice around limited recourse borrowing arrangements or strategies to facilitate the transition from accumulation to pension phase. So the majority of our work is in those areas.

How helpful have you found referrals as a new business pipeline?

I must say it has taken some time to build. We really put a lot of focus into it a few years ago. Prior to then it was something that just came about and happened. But we’ve done a lot of work in that area with some centres of influence and as a result of that, coupled with the changes that have occurred and are occurring with licensing around advice, it is a growing part of our business and continues to develop. Then generally speaking the clients we attract as a result of this focus are more in line with the ones with whom we want to work.

Are you expecting your referrals to increase in volume due to the lack of interest accountants have shown in adopting the licensed advice model?

It’s a hard one. The professionals we have relationships with have already made the decision of what way they want to go in regard to licensed advice, so I am not sure from our perspective whether it will increase our referrals we get or not. I don’t know whether there are a lot of accountants still waiting to decide what to do. All I do know is the firms that we have relationships with determine where their strengths and weaknesses lie and obviously factor us into the equation to help provide solutions for their clients.

How do your clients like their financial advice to be delivered?

It varies quite differently in amongst the individuals. A lot of small business owners are extremely busy and I guess what they’re looking for from us is a service that brings together professionals to provide solutions for them. So for small business owners, if they have got someone they trust and can rely on to bring all those pieces of the puzzle together, a lot of them are more than happy to outsource that. As I said, it does vary, but generally a lot of our clients are quite time poor, so where they can outsource and get someone to bring the expertise they need together, they will.

What effect have the super reforms had on your practice?

I suppose first and foremost the key thing is that a lot of people don’t know whether it will impact them or not and what that impact might be. So from our perspective right at the moment it is really about education and recognising where there are opportunities and making sure people can make the most of those opportunities and what it means for them in the future. That’s what we’re spending a lot of time on at the moment. That’s not just with our clients, it’s also with our centre of influence. We’re working together with those people and making sure they understand as well what the opportunities are from a superannuation point of view with their clients as well as ours. So it really is about education and then from their actions that need to be taken accordingly, depending on what the client’s circumstances are.

How difficult has the process of managing the super reforms from a practice and client perspective been?

It has been a challenge, but I guess you have got to play with the cards you’re dealt. Everyone is in the same boat, but from our side of things our assets have been refocused to concentrate on making sure we get on top of this as much as we can for our clients. So I guess all we’ve had to do is reprioritise some things we were looking at for certain clients to urgently do before 1 July and assess if there are other things we should be concentrating on for those people based on the changes coming through. So it has been a challenge, but nothing you can’t deal with and, as I said, everyone is in the same boat.

Have the latest changes to the system sparked any loss of confidence in the superannuation system itself?

I guess any changes create concern from that perspective and from a superannuation point of view it is in the media quite a bit and as a result at the forefront of people’s minds. Whether it has impacted the confidence of people, it is hard to say, but any change always creates uncertainty among some people and I guess part of our job is to educate people on what those changes mean and the impact they’ll have.

Is it impossible for SMSF trustees to manage the super reforms without advice?

It certainly does heighten the need for people to seek advice. Our message has been, pretty much for everyone, regardless of whether you think the changes impact you or not, seek advice and find out. That way at least you are informed going in to the new regime. It might be the case that you are not impacted, but at least you’ll know. Like every other thing superannuation is very hard to navigate for the general public anyway, so for most people it would be beneficial to seek advice and at least get an understanding of where they sit in regards of where the legislation is and going to be.

What would you nominate as the most significant change to the SMSF sector you’ve seen?

Specific to SMSFs it’s probably the ability to use limited recourse borrowing arrangements to acquire assets for the fund that has been the most significant change in the sector since I have been involved. I just think it has changed the use or the perceived use of SMSFs for a lot of people and a lot of people are now turning an eye to them because of the strategies it affords them the ability to adopt in certain cases.

If there was one thing you could change about the SMSF sector, what would it be?

Dare I say it would be regulating the people who are able to provide advice or services in this area. I think at the moment there is some concern around people getting involved in SMSFs who perhaps shouldn’t through various means, whether it be buying investment property or whatever, having been advised by a real estate agent or property developer or the like they can use their SMSF to do so. I think that is probably the biggest concern and the one thing that needs to change is to perhaps implement some sort of restriction order on those who can actually provide any sort of SMSF advice in this area.

Are you seeing many situations where severe remedial action is needed for an SMSF as a result of poor advice from less regulated service providers?

We haven’t seen a lot of funds suffering from this situation. We’ve only had a few SMSFs we’ve had to unwind because the trustees weren’t suited to run their own super fund. Our experience with these types of situations has been more around people who have come to us and said ‘Look, we have had this promoted to us as such – what do you think?’ as opposed to those who have already jumped into the strategy suggested. Most of our business comes from our centre of influence and accountants anyway, so we don’t normally see issues like this.

What’s the biggest challenge facing the sector over the coming year?

The change to the legislation naturally is the greatest challenge first and foremost and that’s not just restricted to the SMSF sector. But because the simple fact is SMSFs still have higher account balances, this sector is probably more likely to be significantly impacted, either positively or negatively, by the legislation that’s coming through. It’s pretty hard to go past this impending challenge.