A study into trustee behaviour has found that a growing group of trustees may need more advice than they are currently receiving. But Karin Derkley discovers many are reluctant to relinquish control to those they don’t respect and trust as highly-qualified specialists.
Self-managed super keeps growing, with recent Australian Taxation Office (ATO) statistics showing fund numbers grew by 7.9 per cent last financial year to a total of 478,263. But while advisers who have moved into this sector in the past few years might be rubbing their hands with joy at the growth in business this might represent, research conducted by CoreData on behalf of the SMSF Professionals’ Association of Australia (SPAA) and Russell Investments suggests getting new SMSF trustees on the books may be more complex than expected.
As many advisers will already be aware, it can be notoriously difficult to convince SMSF trustees of the need for professional advice beyond the nuts and bolts of setting up and administering their fund. Financial planners have a particularly difficult task in overcoming a negative perception that they are still product pushers rather than a source of holistic financial and technical advice, the study suggests.
The “Intimate with Self-Managed Superannuation” report is in its third year. It grew out of a realisation that despite the stellar growth of the sector there was no comprehensive insight into who trustees are, why they had set up their funds and what they want from the advice industry that has proliferated to cater to their needs, Russell Investments SMSF development manager Erik Quak says.
“There wasn’t a lot of widely available information on this – not in terms of a first-hand insight into the reason ordinary people were jumping into SMSFs,” Quak says.
The sector has changed dramatically over the past 20 years from being dominated by high net worth individuals and small business owners keen to take advantage of the tax concessions to what Quak describes as “middle Australia – the mums and dads who see SMSFs as a way to take control of their retirement savings”.
However, by their very nature, those mums and dads are often the least likely to want to interact with the industry that has eagerly sprung up to cater to their needs.
“They’ll seek out very specific advice – say on tax or compliance issues – but as soon as you start talking about things like asset allocation or investment strategies, they’ll run a mile. After all, that’s why they left their industry or retail fund in the first place, because they want to have control over their super fund, not have someone tell them what to do,” Quak says.
Many trustees believe they can do a better job themselves looking after their fund than a planner, the study found, and most trustees rely on their own research to make investment decisions.
Which is not to say trustees don’t value advice, Quak adds. Many recognise their need for advice in particular areas, but they are more likely to seek out SMSF-specific technical advice from accountants and lawyers rather than more holistic forward-looking advice from a financial planner.
Accountants were regarded by more than a third of respondents as the most trusted source of advice on setting up an SMSF, compared to a quarter who used financial planners to set up their fund. Accountants are also becoming an increasingly popular primary source for overall financial advice, with 27.8 per cent of trustees identifying them as their current source of advice, up from 22.9 per cent in 2011, while financial planners as the primary source of advice fell from 55.2 per cent in 2011 to 40.4 per cent in 2012.
CoreData head of advice, wealth and super Salvador Saiz admits the focus groups consulted for the study uncovered a negative view by trustees of financial planners, especially those tied to large organisations.
“Many people still have a perception of them as product pushers. And there is still confusion about what financial planners do and how they deliver. They see them as generalists and not able to cater for the specific needs of SMSFs,” Saiz explains.
But openness to more holistic advice varies across trustees, the study found. It identifies three types of trustees defined by the different levels of control they seek to exercise over their fund and their investment decisions, and thus their openness to outside advice.
Those described as controllers are those who prefer to take full control of decisions about their fund and what it invests in. They will seek out advice on very specific issues – mostly technical and structural issues to do with tax or compliance – for which they will engage a specific specialist without any expectation of a deeper relationship. They make up around 30 per cent of SMSF trustees, according to the study.
Outsourcers on the other hand are those who like the idea of an SMSF, but who lack the expertise or the inclination to run it themselves and are happy to hand over much of the responsibility for their fund to a trusted professional. They make up around 20 per cent of trustees.
Coach-seekers are estimated to be the largest group of trustees, making up half of the trustee population. They want to have a say in how their fund is run and what it is invested in, but will seek out guidance and information to support their decisions.
The study identifies the coach-seeker as the biggest and also the fastest-growing group of trustees, making it the most likely prospect for future business growth, especially for financial planners. Unlike controllers, they will admit they need help to operate their fund and their investment strategy.
According to Saiz, these people are looking for guidance. “They’ve got a lot of money sitting in cash, they know they need to look at their investment strategies as they go into retirement, and ideally someone needs to be there to guide them in their next move. It’s an obvious opportunity for financial planners,” he says.
SPAA national technical director Graeme Colley says coach-seekers are the most desirable of the segments for financial planners. “These are people who are willing to take an interest in the operation of their fund, to listen to other people and learn from their experiences. They are happy to be educated and that is very rewarding for a planner,” Colley says.
Pitcher Partners head of superannuation Shaun La-Motte agrees coach-seekers are an ideal trustee. “We like the kind of client who is happy to sit down and understand their responsibilities, but are also happy to put their trust in you, so that if there has been a development that requires a review of their structure, you can call them and they won’t see you as a salesman.”
However, others point out this segment can also be the most problematic to service. Professional Super Advisers founder Kevin Smith says the difficulty with many clients in this category is that it’s not clear exactly how much control they want and how much responsibility they want advisers to take on. “Often they don’t know themselves,” Smith says.
Part of the problem is that this segment is really a spectrum that is a hybrid of the other two. At one end are those that say they want to keep control, but are not prepared or able to carry out many of the responsibilities required. At the other are those who say they are happy to take advice, but who are in fact reluctant to relinquish control.
“Whereas outsourcers are happy for you to take control and responsibility, and controllers only want you for specific tasks, it can be difficult to be clear with the coach-seekers exactly what they want,” Smith says.
That makes it essential to establish early on with coach-seekers exactly what their expectations are, he says, and also to have a regular review program to ensure important compliance and technical issues are not overlooked. “It’s easy with this group to have things fall through the cracks if you’re not careful,” he says.
Patrick Anwandter from Strategy First Financial Planning agrees coach-seekers can be a challenge to deal with. “Especially the ones who tend towards being controlling and seek out advice only as long as it confirms what they think. They’ll come in with preconceived ideas of what they want to do and if you challenge those ideas, they are not really interested because they have already made up their minds,” Anwandter says.
“In a way the controllers are easier to deal with because at least you know what the mandate is. They just want you to carry out the strategy and you’re not required to talk about the pros and cons; they’re happy to take the responsibility for that.”
What is clear, when it comes to any of the segments, is the primary message needs to be about the strategic and technical value an adviser can offer.
That impression starts with the very first encounter, Quak points out, including the website, office waiting area and reading material in an adviser’s office.
“What messages are you inadvertently giving? You need to come across as authentic and credible. It’s about making clear to clients that you are partners going on a journey together rather than telling them what to do,” he explains.
Given the resistance of trustees to engaging financial planners, Saiz points out many planners are having to rely on referrals from accountants and other SMSF specialists.
“That makes it really important for planners to build good relationships with accountants and lawyers and to create referral relationships,” he says.
It also makes it absolutely essential that financial planners have comprehensive and up-to-date knowledge on SMSFs. “If people are referring clients on to you, that is not going to last long if you are not absolutely across all the SMSF rules and regulations,” Saiz says.
The report made it clear trustees are not interested in consulting advisers who are not SMSF specialists. “What they want to do is tap into specialists who can provide the broad range and execute specific strategies. They want someone who knows SMSFs inside and out and guide them through that path,” Quak says.
In this light it is perhaps understandable the number of advisers not already servicing SMSFs who say they want to offer SMSF advice in the future has fallen – down to 20.3 per cent in 2012 from 25.5 per cent in 2011.
“That could be because of an increased understanding of the technical complexity of what is required to be an SMSF specialist and perhaps because of a realisation that they have to make a decision between being an investment adviser and a strategic adviser,” Quak explains.
According to Colley, SMSFs are not something you can go into as a sideline. “It’s much too complex, and these are often very smart people – you’ll get questions and if you can’t answer them comprehensively, they are not going to respect you,” he says.
Anwandter agrees. “You need to have access to knowledge and expertise of an incredibly high level. It’s not something you can dabble in. If you get something wrong, the consequences can be quite significant,” he says.
What the segments want
Outsourcers: want a trusted adviser who may bring in specialists to ensure they are covered on all the aspects of running an SMSF.
Controllers: want one-off advice and guidance on SMSF-specific strategies.
Coach-seekers: want guidance and information to help them implement strategies.