Financial Planning

No future for SMSF ‘business model’

SMSF business model

The SMSF business model, where everyone who wants an SMSF gets one, has a limited future, an SMSF advice expert says.

The current SMSF business model is highly unlikely to have a place in the sector’s future, an SMSF advice expert has said.

BT SMSF strategy national manager Neil Sparks said the financial services royal commission revelations of advice failures, the Productivity Commission’s superannuation report and the Australian Securities and Investments Commission’s enforcement activity all pointed to the fact the SMSF business model was not working.

“What I mean by the SMSF business model is that everyone who wants [an SMSF] gets one,” Sparks said at the SMSF Association 2020 National Conference on the Gold Coast today.

“Is that model dead? I think the answer is it is.”

He also highlighted the decline in SMSF establishments and an increase in the winding up of SMSFs as further proof the current model was under threat.

“SMSFs are in decline as far as the number of new establishments goes. It’s down about 20 per cent since 2016, so that’s an interesting challenge for the industry to overcome,” he noted.

“We’ve also got to face the increase in wind-ups.”

Citing the “2019 Vanguard/Investment Trends SMSF Reports”, he said 20 per cent of trustees surveyed indicated they were considering winding up their SMSF. About a third of those respondents talked about franking credit policy as the reason behind winding up their SMSF, he added.

“It’s interesting to correlate this with the 6 per cent [of trustees considering winding up their SMSF] in 2013, the last time this question was asked,” he noted.

Last year’s Vanguard/Investment Trends SMSF analysis also revealed the number of SMSFs with unmet financial advice needs was growing and the vast majority of funds faced barriers to having those needs met.

The ATO statistical report for the September quarter 2019, released in December, showed there had been overall growth in the SMSF sector, with the total number of funds increasing to 598,582 despite a spike in the number of funds wound up in the previous quarter.

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