Xpress Super chief executive Olivia Long says she fell into the sector over 10 years ago. She speaks to Darin Tyson-Chan about the competitive nature of fund administration and how low-cost providers are the cause of some angst.
How did your involvement in the SMSF sector come about?
My first job out of school was with a stockbroking firm and that was my first foot into the business world, and I quite liked that level of excitement and finance. Four years later, I joined Ord Minnett and spent seven years working in the broking environment, but eventually decided sitting in front of the screen all day monitoring share prices and talking about financial markets wasn’t my passion. So I took a small hiatus where I re-evaluated where I was heading and by pure luck I met the two founding partners of SuperGuardian, the owners of Xpress Super. They had this new administration business they were embarking on, wanted someone to head it up, and asked if I was interested in doing so. I thought it sounded like a good opportunity to get in at something at the grassroots and help build it and I started with them a short time after that. So I kind of fell into super I guess, having not known a lot about it and that was 10-and-a-half years ago.
The SMSF administration space is very crowded now, but how different was it back then?
Ten years ago administrators weren’t that popular. Cavendish was a large name and there were one or two large providers, but essentially accountants were still providing the service. So there was a really unique opportunity to come in and commoditise the offering into a product, go to the financial services markets and say ‘let us help you provide the technical component of super and partner with you by offering this to your clients’. Over time we have grown our client base generally through intermediate relationships, partnering with firms that have that level of expertise and taking on administrative work off the back of it. We’ve had great success by taking that partnership-style approach.
What services do you offer your clients?
We provide SMSF fund establishment, a full mailbox service, daily online reporting, tax accounting and compliance, so all the essentials. We also provide a technical support line to the advisers and clients we work with where we are providing compliance advice as part of our offering. Where we need to engage the services of experts, such as estate planners, we do so and we have a panel of people we like and trust to whom we refer our clients.
Is your administration performed on a daily basis?
Yes. We work in a paperless office, we have always been at the forefront of technology, and we use Class Super to provide daily reporting to our clients. We also have a cloud-based filing system where our clients can access all their key documents and permanent documents online as well.
At the moment how competitive is the SMSF administration space?
It is becoming increasingly competitive because we are seeing the number of players emerge at the sub-100 funds level that are looking to build their business in this space. At the same time we’re seeing a large number of administrators consolidate to provide an offering which is pushing the price up at one end and competition from the emerging players where their point of difference is price. So at the moment we are starting to see a bit of a price versus value proposition issue within the market that wasn’t there five or 10 years ago. Back then it was more about service as opposed to price. I suppose the GFC (global financial crisis) has had a bit of impact on that, also given that some people have started to look at the cost of their SMSF more closely and are starting to shop around for what they perceive as good value.
In all of that have you been able to find some middle ground?
We have, given a number of our clients are via intermediaries where they fix the price and the service. We still see a certain number of clients who do move between providers year in and year out. On many occasions though we’re actually seeing clients move from their administrator back to their accountants because the accountants are proposing cheaper fees where they look at the existing administration fee and say ‘I can do that for $1000’. But in reality what they’re offering is nowhere near the same level of service, it’s not as comprehensive. The level of compliance around monitoring their transactions on a regular basis throughout the year is not as robust either. The client loses all of that because the value position has not been explained to them; they don’t know what they are moving away from.
Are the really cheap administration services causing harm to the sector?
Over the past five or six years we have seen a large number of DIY investors come to us citing bad experiences with other providers, ones that have attracted them on the basis of low fees or no entry fees, whatever it may be, and they have had a really bad experience running their SMSF. As experts in this field we found that actually quite disappointing and difficult to hear, and we actually have genuine empathy for these people which are simply trying to make the most of their super savings and not getting the right level of support they need. So we actually made a very unusual decision about two years ago to go into the self-directed investor space, which is a very different investment model to what we have at SuperGuardian, and start to provide and compete with low-cost providers at that level. As a result, we established Xpress Super 18 months ago – a low-cost administrator where we do provide free SMSF establishments to clients and the first year’s administration service at no charge. But our service offering still has a personalised level of service. We are really relying on technology at its greatest capacity, and the related efficiencies, to be able to provide that service at a lower cost.
Have you seen people wanting to abandon their SMSFs as a result of the disappointment with service providers?
We have actually and it’s a larger number than I am happy about. But in some cases we’ve been able to turn them around by working with them and proving a different level of service. In other cases though they make the unfortunate decision to wind up their fund and move on, and in all honesty we have seen probably more wind ups in the last four or five years than we had in the five years prior to that.
Xpress Super provides services directly to trustees. How different is this from dealing with intermediaries?
It is as different as black and white. Very different market segment, very different level of comprehension and I suppose knowledge base around SMSFs. Certainly there is a lot more hand holding with the mums and dads, and what Xpress Super has highlighted to me is a huge lack or a huge gap in the market for trustee education, not just on SMSF compliance and administration, but on things such as asset allocation, diversification and benchmarking rate of returns.
So who should be responsible for increasing trustee knowledge?
I think there is a huge opportunity for somebody in the market sector to come up with something. I don’t think we are seeing a lot of that necessarily at present. We’re currently partnering with firms that we know provide that to trying to have a proactive approach to our client base to say ‘we recommend you consider looking at these forms of trustee education’.
What’s the most significant change you’ve seen in the SMSF sector?
There are probably two. One is the introduction of SPAA (SMSF Professionals’ Association of Australia) and the role they’ve played in the last 10 years in increasing awareness around SMSFs, providing education that is SMSF specific, and providing specialist accreditation. The last item in particular has been very important because it’s given specialists like us the ability to say we really are experts in our field and that’s played a huge role in helping administrators and other practitioners in gaining some of the level of recognition needed. The second largest development is the use of technology in obtaining information via electronic data transfer compared to the paper-based solutions we were looking at 10 years ago. It means trustees can literally on a daily basis look at every piece of vital information around their fund.
What would be the one thing you’d change about the sector?
The one thing that comes to mind would be to change the ability of accountants that have small volumes of funds to provide the services. In all honesty we take on a number of funds from these types of firms where some of the basic superannuation accounting rules haven’t been followed. They have no idea what is happening in super and the poor quality of the fund accounts reflect this. I don’t think these providers should be able to provide SMSF services. I would like to see a level of accreditation coming with accountants around SMSFs like with these auditors. I think it would be a very important move by the ATO (Australian Taxation Office).
What’s the biggest challenge facing the sector in the coming year?
The main challenge is going to be the change in contribution caps, with accountants and financial planners getting their heads around that and understanding the change in order to maximise their clients’ position. We have seen smaller accountants trying to help their clients get more money into super, but still only putting in half the eligible amount because they are simply not aware of the rules, so now the caps are increasing, getting that message out to the people that really need to hear it is certainly going to be a big challenge.