The SMSF advice market had been in a “static hiatus period” in the past three to four months due to uncertainties related to the Future of Financial Advice (FOFA) reforms, according to the head of a financial services broking firm.
Forte Asset Solutions director Stephen Prendeville said the market’s “wait-and-see” attitude in regards to the September 7 federal election had also decreased buying and selling opportunities.
“Activity for SMSF businesses has been substantially lower because of FOFA, specifically because of the annual fee disclosure statements (FDS) and for many the inability to actually deliver on that requirement,” Prendeville told selfmanagedsuper.
“FDS is certainly leading to increased compliance and operational expenses, and how much additional time investment and cost of delivery is still largely unknown by many.
“From a buyer’s perspective, if they’re not happy with their own house, they’re not going to go buy another one; from a seller’s perspective, they don’t want to be selling any assets that may be perceived as weak or uncompliant.”
While the SMSF sector was growing quickly, businesses involved in the area were in the same boat as all other financial planning businesses and received less demand than general “vanilla” practices, he said.
“Yes, it’s the fastest growing and yes, advisory practices need that as a core competency, but it doesn’t make them any less or more attractive than the general market,” he said.
“It is a growing segment, but it’s also still a minority part of the marketplace.
“It’s a specialist area, so therefore it’s more of a niche-type market, rather than mainstream.”
Furthermore, he said the segregated market was a challenge as different buyers wanted different pieces of SMSF businesses.
“I’ve got buyers that are just looking for the administration piece and don’t want the advice component; I’ve got buyers who want the advice component but don’t want the administration,” he said.
“I’ve got people who are more interested in the accounting side of the SMSF market rather than the asset management side, so you’ve got multiple interests and it’s not specifically the total business, it may be parts of the business.”
In regards to the SMSF administration function, there was significantly less demand for businesses that ran it in-house, he said.
“If it’s in-house, then it’s dependent upon the profitability of that business and whether it’s scalable,” he said.
“If it’s using a platform, prospective buyers normally see that they can create leverage and achieve some synergy benefits.
“Any due diligence is going to be focusing on efficacy, particularly when you’re dealing with direct equities, you have to have a really high level of integrity of the underlying system and so therefore that’s why often there’s a higher level of comfort with mass-accepted platforms rather than in-house – because of that level of integrity.”
