2016 Self Managed Super Fund: Accountant & Planner Surveys

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1 Highlights from the Report released: April 2016 Reproduction strictly prohibited Investment Trends 1

2 Thank you I would like to thank all the survey respondents who participated in our 2016 Self Managed Super Fund Surveys in February. Your participation provides valuable feedback to our clients and the regulator on how accountants and planners interact with SMSFs, the challenges they face and where the opportunities to help you and your SMSF clients exist. These highlights gather some of the most interesting results from our accountant and planner research. We have also included some key results from our latest research of SMSF trustees highlighting the current advice opportunities. We hope you find the insights in this pack as fascinating as we did. Many thanks, Mark Johnston Founder & CEO Investment Trends Suite 2102, Goldfields House 1 Alfred Street SYDNEY NSW 2000 Australia 2016 Investment Trends 2

3 Table of contents Methodology & scope 4 Trends in super fund assets 5 Trends in number of SMSFs 6 Areas of advice sought by SMSF trustees 7 Relationships between planners and accountants when servicing SMSFs 8 Financial planner selection criteria 9 Planners challenges in servicing SMSFs 10 SMSF planners investment priorities 11 Planners view on best platform for SMSFs 12 Planners admin support provider 13 Accountants challenges in servicing SMSFs 14 Accountants licensing intentions 15 Accountants involvement in investment advice 16 Accountants view on best platform for SMSFs 17 About Investment Trends Investment Trends 3

4 Methodology & scope The February 2016 Self Managed Super Fund Accountant Report and February 2016 Self Managed Super Fund Planner Report are based on detailed online surveys of accountants in public practice and financial planners conducted in February The surveys examine the roles played by accountants and planners in servicing SMSF trustees and their interactions with other professional advisers, software providers, specialist SMSF administrators, investment platforms and investment product providers. After data cleaning and de-duplication, a total of 1,182 responses were received from accountants in public practice. The maximum sampling error (centre of the range) at the 95% confidence interval for the accountant sample is +/-2.8%. For the planner research, a total of 573 responses were received, 393 of which were from planners who actively advise clients with an SMSF. This gives a maximum sampling error of +/-4.9% for SMSF planners. Note that analysis of smaller subgroups will have a higher sampling error. Throughout this report, we refer to planners who currently advise SMSF clients as SMSF planners and accountants who currently service SMSF clients as SMSF accountants Investment Trends 4

5 Trends in super fund assets According to APRA, SMSF assets grew by 6% to $595bn in the year to December 2015 According to the APRA Quarterly Superannuation Performance Report, SMSFs retained the largest proportion (29%, $595bn) of super fund assets, followed by retail super funds (26%, $540bn) and industry super funds (22%, $446bn). The SMSF sector has continued to grow over the 12 months to December 2015, with total SMSF assets increasing by 6% ($32bn). After outpacing the growth of SMSFs over the preceding two years, APRA-regulated super funds grew at a similar pace over the year to December 2015 (6%, $85bn) to $1.4trn. According to APRA, SMSF assets increased by just 6% ($32bn) to $595bn in the year to December After outpacing SMSFs over the past two years, APRA-regulated funds grew at a similar rate in the year to December 2015 Super fund assets (Source: APRA Quarterly Superannuation Performance Report) 700 SMSFs 600 $ billion Jun-95 Dec-95 Jun-96 Dec-96 Jun-97 Dec-97 Jun-98 Dec-98 Jun-99 Dec-99 Jun-00 Dec-00 Jun-01 Dec-01 Jun-02 Dec-02 Jun-03 Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec Investment Trends 5 Retail Industry (retrospectively reclassified) Public sector (retrospectively reclassified) Corporate 2

6 Trends in number of SMSFs The number of SMSFs reached 567,000 in December 2015 The number of SMSFs continued to grow over 2015, reaching 567,000 in December 2015, up from 541,000 in December This represents a 4.8% annualised (net) SMSF establishment rate (up from 4.5% in 2014), but remains below the longer term average of 5.9%. SMSFs pathway to establishment has evolved in recent years with word of mouth and the media playing increasing important roles in initiating SMSF establishment (27% of SMSFs established in the last year, versus 10% 10 years ago) Advisers still play a significant role in initiating SMSF establishment, with 32% of SMSFs saying they were established following a recommendation from their accountant, and a further 13% due to advice they received from a planner. APRA reports there were 567k SMSFs as of December 2015, up 5% over the year Number of SMSFs (Source: APRA Quarterly Superannuation Performance Report) 302k 315k 341k Jun-06 Sep-06 Dec-06 Mar-07 Jun k 440k 428k 414k 403k 393k 382k 367k Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec k 458k 517k 525k 503k 493k Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun k 552k 541k Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec Investment Trends 6 3

7 Areas of advice sought by SMSF trustees 45% of SMSFs say they have unmet advice needs SMSFs appetite for advice rebounded to the highest level observed, with 45% (up from 39% in 2015) saying they have unmet advice needs. The most common areas that SMSFs would like to receive advice on are related to retirement, including inheritance & estate planning, SMSF pension strategies and the Age Pension & other entitlements. In the current market environment, SMSFs are finding it increasingly challenging to identify investment opportunities for their fund. As a result, more would like to receive advice on investment-related topics than prior years, including investment strategy/portfolio review, identifying undervalued assets and ETFs. Only 30% intend to turn to a financial planner for their advice needs, while 52% would turn to an accountant. Planners can win from forming referral relationships with accounting firms, as this will help them reach a greater share of the SMSFs with unmet advice needs. The proportion of SMSFs who say they have unmet advice needs reached the highest level observed. Advice needs most often relate to retirement, though more are citing investment-related advice gaps % of SMSFs who have unmet advice needs Excerpt from 2016 SMSF Investor Report Q26 Are there any areas in regards to your SMSF in which you would like to be receiving financial advice, but currently aren't? (Multiple responses permitted) Among SMSFs with advice needs 0% 10% 20% 30% 40% 50% Inheritance & estate Inheritance planning & estate planning 24% 45% 43% 39% 45% SMSF pension SMSF strategies pension strategies 22% Age pension (& Age pension (& other social other social security entitlements) security entitlements) 22% Investment Investment strategy/ strategy/portfolio review review 20% 2013 [n=1116] 2014 [n=1078] 2015 [n=1001] 2016 [n=2519] Identifying Identifying under undervalued assets assets 20% 2015 [n=1001] 2016 [n=2519] Investment Trends 7

8 Relationships between planners and accountants when servicing SMSFs Most planners and accountants are already working together to service the SMSF market Five out of six planners say they currently work with accountants to service the SMSF market. This includes 33% who have in-house accountants or joint ventures with one and 51% who have established referral relationships with accountants. Similarly, 85% of SMSF accountants have established relationships with planners. Over the past few years, both planners and accountants have been moving to establish working relationships with each other to service the SMSF market and both groups expect this trend to continue over the medium term. Our analysis reveals that accountants and planners who partner up tend to be more successful in the SMSF space. One in three financial planners say they currently employ in house accountants (or have a joint venture with accounting firms). Just over half of accountants (53%) say they employ in-house planners (or have a joint venture with planning firms) Relationships between SMSF planners and SMSF accountants when servicing the SMSF market 100% 90% 80% 70% 60% 50% No relationship with accounting firms, 16% Have referral relationship with accounting firms, 51% No relationship with financial planning firms, 15% Have referral relationship with financial planning firms, 32% 40% 30% 20% 10% In-house/joint venture with accounting firms, 33% In-house/joint venture with financial planning firms, 53% 0% All SMSF planners [n=430] All SMSF accountants [n=822] Investment Trends 8

9 Financial planner selection criteria Planners who promote SMSF expertise will find it easier to attract these clients Half of SMSFs say honesty/integrity is the top quality they look for when selecting a financial planner. Compared to last year, there are more SMSFs who cite SMSF expertise (46%, up from 38% in 2015), ability to explain concepts in a way they can understand (45%, up from 38%) and experience (40%, up from 35%) among the top three attributes they look for when selecting a financial planner. When it comes to selecting accountants, tax expertise (52%), SMSF expertise (47%) and honesty/integrity (44%) are the most widely desired qualities. Expertise in SMSFs, the ability to explain concepts and experience are growing in importance as drivers when selecting a financial planner Q22 What were the top three things you were looking for when selecting [your main adviser]? (Multiple responses permitted) Among SMSFs who have used a financial planner in the last 12 months (Top 5 shown) 0% 10% 20% 30% 40% 50% 60% 70% Honesty/integrity 50% Expertise in SMSFs Ability to explain concepts in a way I can understand 46% 45% Excerpt from 2016 SMSF Investor Report Detailed knowledge of investment products 43% Experience 40% 2015 [n=194] 2016 [n=447] Investment Trends 9

10 Planners challenges in servicing SMSFs SMSF planners typically cite fewer challenges (4.0, down from 4.2 in 2015) in servicing the SMSF market The top three challenges faced by financial planners when servicing SMSF clients are compliance (35%, down from 40%), accountants setting up SMSFs for unsuitable clients (33%, steady) and educating clients about their responsibilities as trustees (29%, down from 32%). SMSF generalists (planners with 1 to 20 SMSF clients) face different challenges to SMSF specialists (planners with more than 20 SMSF clients), partly because the latter group has closer relationships with accountants. SMSF generalists find it more challenging to acquire SMSF clients and deal with clients accountants, while specialists say lack of integration between their systems and the accountants systems is a critical issue. SMSF planners typically cite 4.0 challenges each in servicing the SMSF market, down from 4.2. A growing proportion see grey areas on what accountants can/can t advise on and lack of integration between systems as a challenge Q70 What are your biggest challenges in servicing the SMSF market? (Multiple responses permitted) Among SMSF planners ( Top 5 shown) 0% 10% 20% 30% 40% 50% Compliance 35% Accountants set up SMSFs for unsuitable clients 33% Educate clients about responsibilities as trustees 29% Administration 28% Grey areas on what accountants can/can t advise 25% Average no. of selection: 2015 [n=390] [n=325] Investment Trends 10

11 SMSF planners investment priorities 70% of SMSF planners cited diversification as their main goal when selecting investments for SMSF clients When selecting investments for SMSF clients, diversification (70%) is planners top investment priority, followed by capital growth (51%) and capital preservation (47%). Compared to last year, more planners see capital preservation (47%, up from 42% in 2015) to be a priority when selecting investments for their SMSF clients, which corresponds with SMSF trustees moving to a more conservative investment approach. More planners are also citing high income (31%, up from 28%) as an investment priority. This is in line with more SMSFs prioritising building a sustainable income stream when selecting investment for their fund. Diversification, capital growth and capital preservation are SMSF planners top investment priorities when selecting investments for their SMSF clients Q29 What are your top priorities when selecting investments for your SMSF clients? (Multiple responses permitted) Among SMSF planners [n=358] 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Diversification Capital growth Capital preservation Liquidity Transparency Lower cost products Investments are simple to understand High income Investments are tax effective Financial strength of provider Good research provider ratings Outcome oriented investments Security (low risk) Investments are 'set and forget' Short term growth prospects (<12 months) Geared/leveraged products Other 7% 4% 3% 3% 16% 22% 20% 51% 47% 46% 40% 37% 32% 31% 30% 30% 70% Investment Trends 11

12 Planners view on best platforms for SMSFs BT Wrap is nominated by planners as the most suitable platform for making SMSF investments BT Wrap is the platform which SMSF planners most widely consider to be the best for their SMSF clients (cited by 16%), followed by North (10%), Macquarie Wrap (9%) and CFS FirstWrap (9%). The recently launched BT Panorama and CFS FirstChoice round out the top 6 best platforms for SMSF clients. BT Panorama has surged by share of SMSF planners nominating it as the best platform for SMSF investments Q59 Which platform do you think is the best for making SMSF investments? Among SMSF planners who use platforms for their SMSF clients [n=231] (Top 6 shown) 0% 5% 10% 15% 20% 25% 30% BT Wrap 16% North 10% Macquarie Wrap 9% CFS FirstWrap 9% BT Panorama 7% CFS FirstChoice 6% Investment Trends 12

13 Planners admin support provider 37% of SMSF planners use SMSF admin services to administer their SMSF clients More planners are turning to accountants to administer their SMSF clients (46%, up from 30% in 2013), which comes at the expense of SMSF admin services (37%, down from 48% in 2013). Where planners use SMSF admin services, AMP is the most-widely used provider with over half of planner relationships. AMP has further extended its lead in this space with its acquisitions of supermate and JustSuper. Planners are increasingly turning to accountants for SMSF admin, with fewer using SMSF admin services Q46 Do you use SMSF admin services to administer your SMSF clients? Among SMSF planners 100% 90% 80% 23% 18% 16% 18% We do the admin within our firm only 70% 60% 50% 30% 38% 45% 46% We use an accountant only 40% 30% 20% 10% 48% 44% 40% 37% Yes, for some (or all) of my SMSF clients 0% 2013 [n=229] 2014 [n=252] 2015 [n=412] 2016 [n=340] Investment Trends 13

14 Accountants challenges in serving SMSFs Changes to the licensing regime is the top cited challenge faced by accountants when servicing the SMSF market Nearly all SMSF accountants say they face challenges when servicing the SMSF market. Changes to the licensing regime (50%), competitive pricing & fee recovery (47%) and educating clients on their responsibilities as trustees (44%) are the top challenges. Being restricted in their advice stands out as a key challenge among accountants who are not authorised representatives. Results from our 2016 SMSF Investor Report shows that accountants who offer a comprehensive financial advice proposition will be setting themselves up for success, with many SMSFs saying they would like to turn to an accountant for their unmet advice needs. Nearly all SMSF accountants are facing challenges in servicing the SMSF market. These challenges most often relate to the licensing regime (50%) and competitive pricing & fee recovery (47%) Q14 What are your biggest challenges in servicing the SMSF market? (Multiple responses permitted) Among SMSF accountants [n=1079] ( Top 5 shown) Changes to the licensing regime 50% Competitive pricing & fee recovery 47% Educating clients 44% Compliance obligations 38% Attracting new clients 32% Restrictions on providing financial planning advice 31% Investment Trends 14

15 Accountants licensing intentions 13% of SMSF accountants already operate under a full AFSL, and a further 11% intend to do so by July 2016 With the deadline for the removal of accountants licensing exemption looming, some accountants have already made the move to become licensed. 17% of accountants currently operate under either a full or limited AFSL, and an additional 39% intend to do so by July % of accountants say they do not intend to become licensed and will instead outsource SMSF advice to someone else, while few (4%) plan to stop advising on SMSFs altogether. Among accountants who intend to operate under a limited AFSL, two-thirds intend to outsource the advice if it goes beyond the scope of what they can advise. Financial planners can further grow their SMSF business by working closely with these accountants. As more accountants move to operate under a full (or limited) AFSL, fewer say they intend to do so Q23 With the implementation of the new licensing regime, what do you intend to do by July 2016? Among SMSF accountants [n=721] 0% 10% 20% 30% 40% 50% Plan to to obtain a a full (RG146) licence licence 11% Plan to obtain the limited Plan to obtain the limited licence licence Do not intend to to be be licensed & will outsource SMSF advice 28% 27% Plan to stop Plan advising to stop on advising SMSFs on SMSFs altogether 4% Other I I don't don't know know 13% Operating under limited AFSL 4% Operating under full full AFSL 13% Investment Trends 15

16 Accountants' involvement in investment advice One in four of SMSF accountants plan to recommend investments to their SMSF clients in the future Only 11% of SMSF accountants currently recommend investments to their SMSF clients. A further 14% intend to do so in the future. Only 11% of SMSF accountants say they currently recommend investments to their SMSF clients. A further 14% intend to do so in the future Q60 Do you currently recommend investments to your SMSF clients? Among SMSF accountants [n=777] I haven't advised on this & don't intend to do so, 69% I have advised on this but won't in future, 5% I have advised on this & intend to continue, 11% I haven't advised on this but may do so in the future, 14% Investment Trends 16

17 Accountants view on best platform for SMSFs BT Wrap is most widely nominated by accountants as the most suitable platform for their SMSF clients 61% (up from 57% in 2015) of SMSF accountants are able to nominate a platform as most suitable for SMSFs. Among those who do, BT Wrap is the platform which SMSF accountants most widely consider to be the most suitable for their SMSF clients (cited by 34%), followed by Macquarie Wrap (26%) and Asgard ewrap (7%). MLC Wrap (7%) and netwealth (4%) round out the top five platforms accountants consider to be the 'most suitable' for SMSFs. SMSF accountants most widely consider BT Wrap and Macquarie Wrap to be the most suitable platforms for SMSFs Q99 Which investment platform do you think is the most suitable for SMSFs? Among SMSF accountants who nominated a platform as being 'most suitable [n=268] (Top 5 shown) BT Wrap 34% Macquarie Wrap 26% Asgard ewrap (including Infinity) 7% % able to nominate a platform as most suitable for SMSFs MLC Wrap/Navigator 7% 49% 57% 61% netwealth 4% 2014 [n=229] 2015 [n=679] 2016 [n=442] Investment Trends 17

18 About Investment Trends Investment Trends is a specialist research organisation which provides new business insights and decision support information to many leading financial services organisations. We combine analytical rigour and strategic thinking with the most advanced market research and statistical techniques to help our clients gain competitive advantage. Investment Trends is headed by Mark Johnston. Mark has been a leading industry analyst in the brokerage, CFD, FX and wealth management industry since Investment Trends was started in Australia and is now a multi-national research organisation servicing clients in Australia, Asia, Europe and the US. Our work is focused on helping clients answer three fundamental questions: 1. How does the market currently work? 2. How is the market evolving? 3. How do I improve business outcomes: Acquire more customers Retain more existing customers Increase revenue per customer Prioritise technology and process investments Investment Trends clients include many of the leading banks, investment platform providers, online brokers, product providers, as well as major industry regulators Investment Trends 18

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