The increasing interest in self-managed superannuation funds (SMSFs) has offered a growing revenue stream for many accounting firms1.
Changing regulations may have given pause to some firms offering SMSF services but others are actively expanding their service offering and planning for future growth.
Accountants and SMSF financial advice services
Many clients have seen accountants as their source of knowledge when it comes to establishing and managing SMSFs2. Accountants were previously able to operate under the exemption provided in Corporations Regulation 7.1.29A (Accountants’ Exemption), which permitted a recognised accountant to recommend that a client establish or wind up an interest in a SMSF without being licensed under the Australian Financial Services (AFS) licensing regime. The Accountant’s Exemption was removed from 1 July 2016, meaning that an accountant must now have an AFS licence to recommend a client establish or wind up an interest in a SMSF.
Evaluating the time and costs involved in obtaining and complying with an AFS licence, even as a limited licence, may have seen some accounting firms move away from offering SMSF services.
However, research by BT and Investment Trends (released in February 2018) found that accountants who provided SMSF financial advice services reported material growth in practice revenue2. Revenue gains were reported by 57% of those with in-house planners, 53% with an authorised representative in their firm and 49% with a limited licence. Those with an authorised financial representative reported the highest average annual increase in revenue, at 27% growth, while those with in-house planners reported 20% growth and 17% for limited licences.
Revenue gains were not restricted to those offering in-house services, with 23% of those who referred their clients to an external financial planner reporting increases, with an average annual increase in revenue of 14%.
Longer-term business advantages of SMSFs
The continued interest in SMSFs and potential for revenue growth has opened interesting opportunities for many firms and factors as a key part of their longer-term business strategies.
Over the four years to 30 September 2017, the total number of SMSFs in Australia grew by 17.5%, with the total number of SMSFs at 598,620 at 598,620 , catering to 1,139,721 members1. The appeal has not been restricted to older investors either, with the ATO reporting the bulk of new SMSFs established in the year to September 2017 (32.3%) was by members aged 35-44 years old and interest shown in younger brackets. While the number of new SMSFs being established has decreased slightly in recent years, the firms surveyed by Investment Trends still expect the transparency and choices involved in SMSFs to continue to appeal to investors. At the very least, the ongoing needs of those investors with SMSF investments will continue to drive the need for financial advice services, ranging from retirement planning to other investment goals.
In fact, 69% of SMSF accountants surveyed by BT and Investment Trends expect growth in SMSF client numbers in the coming year. A primary driver is expected to be client demand for establishing SMSFs and this is expected to be supported by the ongoing need for support in financial advice services, such as for retirement planning, for their SMSFs2. The trend towards offering in-house expertise is likely to continue, with more accountants citing their expectations for this in the next five years’ time.
Choosing a service model
While an in-house service model might be the hope for many, accounting firms will need to evaluate whether the costs will meet their desired revenue streams. Alongside the cost and time involved in the provision of SMSF financial advice services, there are costs associated with administration, licensing and the need to remain up-to-date with regulations as well as ensuring the provision of any financial services advice are compliant with those regulations.
For some, partnering with external financial advisers may be a more suitable and efficient option. The key to this will be building a relationship with external financial advisers based on trust, aligned values, and collaboration. While knowing where to find partners can seem challenging, accounting firms could consider reaching out to financial advisers servicing the area they work in, or even using databases provided by ASIC or businesses in the industry as a starting point for discussions on values and servicing partnerships.
The growth of SMSFs presents an opportunity for accounting firms to grow their revenue streams and service offer, but also poses challenges in choosing the right approach for their business to supply these services. For those interested in expanding in this way, selecting a service model based on the needs of their clients and their business will be an important factor in positioning for longer-term SMSF growth.
1. ATO Self-managed super fund statistical report – September 2017
2. BT/Investment Trends SMSF Accountant Report 2018. Survey conducted between 15-28 January 2018 with 185 respondents (136 with 1-50 SMSF clients, 48 with more than 50 SMSF clients). Maximum sampling error at the 95% confidence interval for the sample is +/-7.2%.
This information has been prepared by Westpac Banking Corporation ABN 33 007 457 141 AFSL & ACL 233714 (Westpac) and is current as at 26 February 2018. The information provided is general in nature and does not take into account your objectives, financial situation or needs and therefore, before acting on it, you should consider whether it is appropriate for you It may contain material provided by third parties derived from sources believed to be accurate at its issue date. While such material is published with necessary permission, no company in the Westpac Group accepts any responsibility for the accuracy or completeness of, or endorses any such material. Except where contrary to law, we intend by this notice to exclude liability for this material. Past performance is not a reliable indicator of future performance. You should consider whether or not provision of SMSF financial advice services is appropriate for you. ©Westpac Banking Corporation 2018