Self-managed super funds insights

Transcription

1 Self-managed super funds insights November 29

2 Ltd ( ) is one of the world s largest accounting bodies with more than 122, members of the financial, accounting and business profession in countries. For information about, visit our website cpaaustralia.com.au First published 29 Ltd ACN Bourke Street Melbourne Vic Australia ISBN Legal notice Copyright Ltd (ABN ) ( ), 29. All rights reserved. Save and except for third party content, all content in these materials is owned by or licensed to. All trade marks, service marks and trade names are proprietory to. For permission to reproduce any material, a request in writing is to be made to the Legal Business Unit, Ltd, 385 Bourke Street, Melbourne, Victoria. has used reasonable care and skill in compiling the content of this material. However, and the editors make no warranty as to the accuracy or completeness of any information in these materials. No part of these materials are intended to be advice, whether legal or professional. Further, as laws change frequently, you are advised to undertake your own research or to seek professional advice to keep abreast of any reforms and developments in the law. To the extent permitted by applicable law,, its employees, agents and consultants exclude all liability for any loss or damage claims and expenses including but not limited to legal costs, indirect special or consequential loss or damage (including but not limited to, negligence) arising out of the information in the materials. Where any law prohibits the exclusion of such liability, limits its liability to the re-supply of the information.

3 Contents Table of contents 1 Executive summary 2 Key findings 3 About this research 4 Research findings 5 1. Self-managed superannuation funds and consumers Incidence of self-managed super fund holders in sample Reasons for having or not having a self-managed super fund Influencers on the decision to have or not have a self-managed super fund Satisfaction with self-managed super funds Alternatives to self-managed super funds that were considered Trustees understanding of their obligations 1.7 Investment strategy Impact of the global financial crisis on self-managed super funds Average costs of a self-managed super fund Advisers and service providers 2.1 Incidence of clients with a self-managed super fund 2.2 Estimated number and type of clients with a self-managed super fund 2.3 Estimated mean value of clients self-managed super funds Reasons for recommending to establish or not to establish a self-managed super fund Alternatives to self-managed super funds Specific services provided Breakdown of self-managed super funds by investment type Impact of the global financial crisis on self-managed super funds Outcomes and opportunities Self-managed super funds now dominate the retirement savings space Numbers of advisers moving into self-managed super funds continue to grow How accountants and CPAs are viewed as sources of advice Opportunities for advisers 29 1

4 Executive summary Continuing growth in the number of self-managed superannuation funds (SMSFs) illustrates the important role that they play for retirement saving and estate planning. The number of SMSFs continues to steadily increase. According to the Australia Taxation Office there were just over 4, SMSFs at the end of June 29 with approximately $332 billion in assets, making SMSFs the largest segment of the superannuation market by asset value. This in itself demonstrates that Australians have certainly embraced SMSFs as a useful tool to save for their retirement. Traditionally accountants have been the dominant source of structuring advice on SMSFs and have proved to be strong proponents of their advantages. However increasing numbers of financial planners have been moving into the SMSF advice market. SMSF trustees are ultimately responsible for the operation of their superannuation fund and therefore have a greater responsibility than those who are in other forms of superannuation funds. The penalties for not complying with these obligations can result in significant penalties such as fines, loss of tax concessions or being barred from acting as a trustee of an SMSF. believe SMSFs are a legitimate and valuable retirement savings vehicle for many Australians but they are not for everyone. The majority of trustees are genuinely saving for their retirement and trying their best to comply with often complex rules and regulations. However, there are perceptions exist that: SMSFs are being recommended inappropriately SMSFs are not as closely regulated as large funds and are being used inappropriately for purposes other than saving for retirement many SMSF trustees do not have the necessary knowledge or experience to run their funds effectively and comply with the law. As a result, commissioned research to see if there was any substance to these perceptions. previously conducted a research project into SMSFs in 24. This research project presented an opportunity to update the earlier research. 2

5 Key findings Almost a third of consumers sampled have, used to have or have considered having an SMSF. Control (of investments and decision-making) was again identified as the primary reason for choosing an SMSF, with other individual factors far less influential. Seventy-six per cent of fund owners sampled are satisfied with their SMSF. Industry funds clearly stood out as an alternative to SMSFs for individuals and small business owners. SMSFs are just as likely to be bought as sold. Family and friends were the biggest influence (44 per cent) on individuals decisions to have their own SMSF. Seventy-six per cent of consumers sampled stated the main purpose of their SMSF is to provide benefits to a member on or after retirement or provide benefits to a member after they attain preservation age. This suggests that the majority of SMSF trustees are legitimately using their SMSF as a vehicle to save for their retirement. There is considerable scope for trustees of SMSFs to improve their knowledge of their obligations. For example, only 51 per cent of respondents said that they were a trustee of their SMSF. There has been little change in the distribution of investments since 24, even with the global financial crisis (GFC). Consumers generally felt the GFC has had a neutral effect on the appeal of equities and a slightly positive impact on cash and fixed interest. Eighty-four per cent of public practitioners and 86 per cent of financial planners surveyed have clients with an SMSF, with growth in all segments providing SMSF advice. The estimated mean balance of an SMSF for a clients in 29 are: public practitioner $59, Random financial planners $77, financial planners $669, Control was also cited as the primary reason for recommending to establish an SMSF by advisers. Main reasons for not recommending to establish an SMSF include insufficient capital / contributions and insufficient skills / knowledge. There is a trend among service providers of buying in expertise or outsourcing rather than the principal providing all relevant services to the client. There is an even higher incidence of managed funds being used in conjunction with SMSFs than 24. Like consumers, advisers felt the GFC had had no change on the investment decisions of consumers. members were seen as being leaders in providing SMSF advice by the bulk of advisers surveyed and there is strong support for to position members as leaders in this space. 3

6 About this research The research was conducted by Di Marzio Research on behalf of. It consisted of an online survey with 1251 consumers aged 18 and over which included: 179 consumers who currently have an SMSF 63 consumers who previously owned an SMSF 166 consumers who had considered establishing an SMSF. Surveys were also conducted by telephone with: randomly selected public practitioners (PP); licensed financial planners (FP) made up of 2 financial planners selected at random financial planners who are also a member of. The findings from this research have been broken down into the following areas: 1. Self-managed super funds and consumers 2. Advisers and service providers to SMSFs 3. Overall outcomes and opportunities 4

7 Research findings 1. Self-managed superannuation funds and consumers 1.1 Incidence of self-managed super fund holders in sample An online omnibus survey was conducted, allowing effective access to the community at large from a sample of 1251 respondents across Australia. Graph 1 shows that 32 per cent of those surveyed either have, or used to have, or have considered having, an SMSF. This compares with 29 per cent of those sampled in 24. Graph 1: Incidence of self-managed super fund holders in sample % Have an SMSF Used to have an SMSF Don t have an SMSF, but have considered Never considered an SMSF I don t really know what an SMSF is Of this sample, 14 per cent are currently self-employed or else they are owners or part owners of small businesses. Twentyfour per cent of the rest were previously self-employed or owners or part owner of small businesses. The appeal of SMSFs to the self-employed is readily apparent with these respondents were more likely to have an SMSF or to have previously considered having one than non-small business owners, as demonstrated in Table 1. Table 1: Incidence of small business owners who have a self-managed super fund Small business owner Small business ex-owner Yes (%) No (%) Yes (%) Have an SMSF now Used to have an SMSF 7 4 Have considered an SMSF Total Blue figures indicate statistically significant differences to at least the 9 per cent confidence level. 5

8 1.2 Reasons for having or not having a self-managed super fund Control (39 per cent) was the primary reason given for having an SMSF, consistent with the findings in 24 (33 per cent). The numbers of small business owners and individuals giving this reason were again similar in 29, although there was a higher percentage of small business owners citing this reason (49 per cent) compared to individuals (35 per cent). Table 2: Main reasons for deciding to use a self-managed super fund Total with an SMSF 29 (%) 24 (%) Better control of my investments / I make decisions Recommended by others 4 11 Offers flexibility 7 For the tax advantages - 9 Others losing too much / better returns 6 8 Thought I could do better financially than using a paid fund manager - 8 Lower costs / less fees 7 7 Safe / safer 3 6 Was considered the way to go / thought I d better start - 6 For retirement later / now retired and have time to learn about it 6 6 Simplicity / ease 7 2 Work-related / self-employed Blue figures indicate statistically significant differences to at least the 9 per cent confidence level. There is no dominant barrier to having a self-managed superannuation fund that can be identified (Table below), but a few themes are apparent in the responses, viz.: alternatives preferred: looked after by employer s fund / happy with the fund I ve got (16 per cent); and my investments are handled by a financial adviser (9 per cent). fears / concerns with SMSF: too complicated / lack knowledge/confusing (18 per cent); too much risk (4 per cent); and costs / fees too high (2 per cent). personal situation not conducive: not enough funds / no spare cash to invest in one (12 per cent); lack of time / too busy (7 per cent); don t know enough about it / don t understand what it is (6 per cent); and don t work (6 per cent). 6

9 Table 3: Main reasons for not having a self-managed super fund Total without an SMSF 29 (%) 24 (%) I m looked after by employer s fund / happy with the fund I ve got Lack of time / too busy 7 I m a student / just finished university / don t work 6 8 I am or I was a public service with government superannuation or a Commonwealth superannuation fund - 8 Too complicated / lack knowledge of it / confusing 18 7 Not enough funds available to manage one / no spare cash to invest in one 12 6 Costs / fees too high 2 5 Wasn t in existence when I was working / came in after retirement - 5 Don t know enough about it / don t understand what it is 6 4 I do my own investing / have managed my own affairs - 4 My investments handled by a financial adviser / prefer professional to look after it 9 4 Too much risk 4-1. Blue figures indicate statistically significant differences to at least the 9 per cent confidence level. 1.3 Influencers on the decision to have or not have a self-managed super fund Graph 2: Incidence of various sources on decision to have a self-managed super fund % 5 Accountant Financial planner SMSF specialist Friends or family Major Minor Graph 2 illustrates the influence that various people have had on the consumer s decision to have an SMSF. Interestingly, in per cent of respondents said that their accountant had had a major influence on their decision. In 29, the figure had dropped to 19 per cent. In 24 only per cent said that their friends and family had a major influence on their decision. In 29, this figure had risen to 23 per cent. 7

10 Table 4: Influences when they are deciding whether to have an SMSF Have SMSF Small business owners (%) Individuals (%) Of major influence: Accountant Financial planner SMSF specialist 8 18 Friends / family Of minor influence: Accountant Financial planner SMSF specialist Friends / family 2 21 Of major or minor influence: Accountant Financial planner SMSF specialist Friends / family Blue figures indicate statistically significant differences to at least the 9 per cent confidence level. Table 4 shows that when these responses are further broken down into small business owners and individuals, it is the accountant who is most likely to influence the decision of the small business owner. For individuals, again it is family and friends who are the greatest influence, closely followed by financial planners and SMSF specialists. Graph 3: Incidence of various sources on not to have a self-managed super fund % Major Minor Major Minor Major Minor Major Minor My accountant Financial planner SMSF specialist Friends or family Used to have Considered Graph 3 shows that individuals who used to have an SMSF or had considered having one were influenced to a small extent by accountants, financial planners, SMSF specialists or friends and family. 8

11 For this group, there is an overall sense that friends and family seem to stand out as influencers ahead of accountants and financial planners. Interestingly, those who used to have an SMSF were more likely to say that they were more influenced in their decision to dispose of it by an accountant, financial planner or SMSF specialist than by friends or family. 1.4 Satisfaction with self-managed super funds Those who have an SMSF are largely satisfied with their decision. As Graph 4 shows, the reasons why included: 29 per cent said they had no problems or were happy with it 26 per cent said that they enjoyed good returns 13 per cent said, I m in control of my fund These levels of satisfaction are slightly lower than those of 24, but the level of dissatisfaction has largely stayed the same. It should be noted that in 24 the economy was significantly stronger than at present and this could be a reason why the level of satisfaction has fallen. Graph 4: Satisfaction with self-managed super fund % Satisfied Netural Dissatisfied Alternatives to self-managed super funds that were considered Industry funds were clearly the most popular alternative to SMSFs among respondents to the survey. Thirty-six per cent of the individuals surveyed and 32 per cent of small business owners surveyed reported that they had considered industry funds as an alternative to their SMSF. This is true for both individuals and small business owners, although the latter were above average in considering retail funds (21 per cent to 8 per cent) Industry funds were considered most of all by the trade qualified respondents (42 per cent). Fifteen per cent of metropolitan respondents had considered retail funds as compared with only 7 per cent of regional or rural respondents. This was also true for small APRA funds ( per cent and 2 per cent). 9

12 Graph 5: Alternatives considered to a self-managed super fund % Industry funds Retail funds Small APRA funds Master funds and WRAPS Individuals Small business owners 1.6 Trustees understanding of their obligations Overall, just over half of the consumers surveyed (51 per cent) said that they were a trustee of their SMSF. Small business owners fared better in this result with 74 per cent stating they were trustees. This is in line with the results in 24 (79 per cent). Sixty-nine per cent of consumers (59 per cent of the individuals and 82 per cent of the small business owners) said they felt they had a good understanding of their obligations. Knowledge of self-managed super fund: its purpose and limitations All consumers were asked what was the main purpose of their SMSF. Seventy-six per cent said it was for providing retirement benefits. Individuals and small business owners provided nearly identical responses: 61 per cent of individuals and 63 per cent of small business owners said it was to provide benefits to a member on or after retirement 13 per cent of individuals and 16 per cent of small business owners said it was to provide benefits to a member after they attained preservation age Only 6 per cent of individuals and 8 per cent of small business owners said it was to provide benefits to a member s beneficiaries if a member dies 2 per cent of individuals and 12 per cent of small business owners said that it was for a purpose other than those listed above. Graph 7 shows that only 24 per cent of individuals and 38 per cent of small business owners are aware that in certain circumstances an SMSF can borrow money. Nearly 7 per cent of individuals and 57 per cent of small business owners were unsure or said no, an SMSF cannot borrow money.

13 Graph 6: Can self-managed super funds borrow money? % Yes, without limitation Yes, with limitations No Unsure Individual Small business owner Consumers were asked to specify the maximum percentage of assets an SMSF can invest in a related party. Seventy-two per cent answered 5 per cent or less and 24 per cent answered don t know, showing that most trustees understood this limitation. All respondents were asked a series of questions relating to other limitations on SMSFs. Their responses are summarised in Table 5. Looking at these results, it is clear that SMSF holders need to improve their knowledge. In both groups there are sizeable proportions who are unsure or not aware of the options and benefits of an SMSF, despite 69 per cent saying that they felt they had a good understanding of their obligations as an SMSF trustee. Table 5: Knowledge and understanding of limitations of a self-managed super fund Questions Can assets other than cash (also referred to as in-specie contributions) be transferred into an SMSF? Can trustees of SMSFs lend money to another member or relative of a member using the resources of the SMSF? Can an SMSF acquire assets from a related party? Do limits apply to contributions made? Have an SMSF Individual (%) Small business owner (%) Total (%) Yes, without limitations Yes, with limitations No Unsure Yes, without limitations 7-5 Yes, with limitations No Unsure Yes, without limitations Yes, with limitations No Unsure Yes No Unsure Blue figures indicate statistically significant differences to at least the 9 per cent confidence level. 11

14 Instalment warrant borrowings The 36 per cent of consumers who believed an SMSF can borrow money (with or without limitations) were then asked if they had used an instalment warrant to borrow money for their SMSF. Only had borrowed via an instalment warrant. It was found that small business owners were more likely to answer yes to this question. It was also found that just over onethird of individuals were unsure if they had used this borrowing option. Table 6: Has your self-managed super fund borrowed to invest via the instalment warrant provisions? Has your SMSF borrowed money to invest via instalment warrants?: Have an SMSF Individual (%) Small business owner (%) Total (%) Yes No Don t know If yes, did you invest via: (4) (6) () a traditional or commercially available instalment warrant? a structured arrangement unique to your fund? - 24 Or do you not know? equities business real / property 4 24 If yes, investment via instalment warrant is in: other property other types of investment - 24 Don t know Blue figures indicate statistically significant differences to at least the 9 per cent confidence level. 1.7 Investment strategy When asked if their SMSF has an investment strategy, one-third were unsure if their fund had a strategy and a further 13 per cent said no. Small business owners were more likely to say yes (67 per cent) than individuals (48 per cent). Sixty per cent of those with an investment strategy said that it was formally documented. The distribution of investments in the SMSFs is shown in Graph 7. Each of the four types of investments has a minority share overall, but none is insignificant. Cash and fixed interest are most popular followed by equities. These results are similar to those of

15 Graph 7: Mean estimated percentage of total investments of a self-managed super fund % Equities Business real property Cash and fixed interest Others types of investment, e.g. property or collectables Individuals Small business owners 1.8 Impact of the global financial crisis on self-managed super funds The research also extended to see how the GFC may have impacted on the investment decisions of the SMSF trustees. Graph 8 shows that there has been a mixed reaction to the GFC consistently across all asset classes. However, on average a third of those surveyed have made no change to their asset allocation since the GFC. Nearly per cent said that they would now be more likely to invest in cash, which is not surprising in the current economic climate. However, nearly 25 per cent did say that they would be more likely to now invest in equities. Considering that 81 per cent of consumers advised that their SMSF is currently in accumulation phase building up for the retirement, this result is not unexpected. Graph 8: How has the GFC impacted on your investment decisions? % Equities Business real property Cash and fixed interest Other types of investments More likely to invest in Less likely to invest in No change Don t know 2., Submission on Australia's Future Tax System Retirement Income Consultation Paper, February 29 13

16 Consumers were also asked if the GFC has impacted on the level of advice they seek from professionals to manage their self-managed superannuation fund. Graph 9 shows that while small business owners were slightly more likely to seek advice during these times, nearly 5 per cent said that there had been no change in the amount of advice they would seek. Graph 9: Amount of advice sought since the GFC % Increased Decreased Not Changed Don t know Individuals Small business owners Total 1.9 Average costs of a self-managed super fund Table 7 shows the average costs of maintaining an SMSF for individuals and small business owners. It can be seen that the costs have increased since 24. Table 7: Costs of maintaining a self-managed super fund Cost of maintaining an SMSF Individual (%) Small business owner (%) Have an SMSF Total (%) 24 total (%) Under $ p.a $ to $2999 p.a $ to $4999 p.a Over $5 p.a Don t know Mean $ p.a Blue figures indicate statistically significant differences to at least the 9 per cent confidence level. 14

17 2. Advisers and service providers This section focuses on the research results for service providers and advisers to SMSFs. This group consists of public practitioners, licensed financial planners and randomly selected financial planners. It should be noted that of those financial planners sampled, 86 per cent were a representative or a authorised representative of an Australian Financial Services licence (AFSL) holder and the remaining 14 per cent held their own AFSL. This was true for the financial planners and the sample of financial planners selected at random. 2.1 Incidence of clients with a self-managed super fund Graph illustrates the incidence of clients with an SMSF for 24 and 29. While the percentage of public practitioners who have clients with SMSFs has remained fairly constant over this period, financial planners and random financial planners have each had an increase in the incidence of their clients who have an SMSF. These results would seem to be consistent with the increasing popularity of SMSFs and the fact that they now hold nearly 32 per cent of all superannuation assets, making them the largest segment, by asset value, of the superannuation market. Graph : Incidence of clients with a self-managed super fund % public practitioner financial planner Random financial planner Estimated number and type of clients with a self-managed super fund Table 8 shows that there has been no significant shift in the number of clients with an SMSF that a practitioner or adviser currently has compared to in 24. This demonstrates that though there are steadily increasing numbers of consumers with an SMSF, there are also increasing numbers of practitioners and financial advisers entering this space. It is also evident that almost two-thirds of the SMSF clients of a public practitioner are small business owners, whereas the clients of financial planners are more likely to be individuals and families.

18 Table 8: Estimated number and type of clients with a self-managed super fund CPA public practitioners Financial planners Randoms CPAs Total 24 (%) 29 (%) 24 (%) 29 (%) 24 (%) 29 (%) 24 (%) 29 (%) Mean number of SMSFs Mean percentage of SMSF clients who are: small business owners individuals or families who are not retired individuals or families who are retired Blue figures indicate statistically significant differences to at least the 9 per cent confidence level. 2.3 Estimated mean value of clients self-managed super funds All respondents were asked to estimate the average size of funds within the SMSFs of their clients. Graph 11 provides a breakdown of these responses for each segment and overall. Graph 11: Estimated funds in client s self-managed super fund $ s Under $12, $12, to $25, $12, to $5, $5, to $1 million Over $1 million public practitioners Random financial planners financial planners Total When compared to the average balances of their clients SMSFs in 24 as illustrated in Graph 12, it can be seen that there has been an increase in the value of funds across all segments. 16

19 Graph 12: Estimated average size of client s self-managed super fund in 24 and $,s public practitioners Random financial planners financial planners Total Under $12, $12, to $25, $25, to $5, $5, to $1 million Over $1 million This is supported by the fact that the mean balance of an SMSF for each segment sampled has increased as shown in Table 9, as would be expected when saving for retirement. Table 9: Estimated mean value of self managed super funds in 24 and 29 public practitioners Random financial planners financial planners 24 $355, $4, $419, 29 $59, $77, $669, 2.4 Reasons for recommending to establish or not to establish a self-managed super fund While the reasons for recommending the establishment of an SMSF given by respondents in 29 are similar to those given in 24, the gives control over investments/savings response was even more frequent for all groups in 29. This is also consistent with the main reasons provided by consumers for wanting to use an SMSF as shown in Table 2. 17

20 Table : Main reasons for recommending that clients do establish a self-managed super fund CPA public Financial planners Main reasons for recommending that practitioners Randoms CPAs Total clients establish an SMSF 24 (%) 29 (%) 24 (%) 29 (%) 24 (%) 29 (%) 24 (%) 29 (%) Gives control over investments/savings Tax advantages Good way of planning towards retirement/for future Flexibility Need reasonable finance base to start/ability to contribute Cost savings to client/less administrative fees Offers good return/wealth creation opportunities Estate planning / property ownership/ direct property Depends entirely on individual circumstances Blue figures indicate statistically significant differences to at least the 9 per cent confidence level. public practitioners also cited tax advantages more frequently than did financial planners. Table 11: Main reasons for recommending that clients do not establish a self-managed super fund Main reasons for recommending that clients do not establish an SMSF Insufficient capital funds/inability to maintain contributions Need a level of competence/skills/ knowledge to run SMSFs Cost/can be expensive to set up/ ongoing costs/audit costs Regulatory requirements/compliance obligations Need to be disciplined/focused/ take responsibility Need to be good at keeping records/ lots of paperwork CPA public Financial planners practitioners Randoms CPAs Total 24 (%) 29 (%) 24 (%) 29 (%) 24 (%) 29 (%) 24 (%) 29 (%) Completely unsuitable for their needs Need to allow considerable time to administer Trustee obligations Blue figures indicate statistically significant differences to at least the 9 per cent confidence level. In 24, the main reason provided by each group not to recommend an SMSF was insufficient capital funds/inability to maintain contributions. Table 11 shows that this reason was cited even more in

21 Other reasons to note include: need a level of competence/skills/knowledge to run an SMSF cost/can be expensive to set up/ongoing costs/audit costs 2.5 Alternatives to self-managed super funds All financial planners advisers currently providing SMSF advice were asked what alternatives they consider when making a recommendation. The results are shown in Graph 13. Graph 13: Options considered when providing advice to establish a self-managed super fund % Retail funds Industry funds Small APRA Master funds funds and wraps Remaining in their current fund Random financial planners financial planners Total Graph 14 shows that while master funds and wraps appear to be the most popular choice for financial planners, all retirement savings vehicles have their appeal. Graph 14: Estimated mean percentage of clients recommend these products to % SMSFs Retail funds Industry funds Small APRA funds Master funds and wraps Remaining in their current fund Random financial planners financial planners Total 19

22 2.6 Specific services provided The respondents who said that they provide advice to clients with an SMSF about that fund, were then asked which services they provide in their practice. Table 12 summarises these findings and compares it to the results of the survey conducted in 24. Table 12: Specific self-managed super fund services provided by the respondent or another in the firm CPA public practitioners Financial planners Randoms CPAs Total 24 (%) 29 (%) 24 (%) 29 (%) 24 (%) 29 (%) 24 (%) 29 (%) Service provided by the respondent: Fund establishment Preparation of trust deeds Administration Audit Investment management Insurance Broad investment advice Specific product recommendations Training to trustees on their obligations Any of the above Service provided by others in the firm: Fund establishment Preparation of trust deeds Administration Audit Investment management Insurance Broad investment advice Specific product recommendations Training to trustees on their obligations Any of the above Blue figures indicate statistically significant differences to at least the 9 per cent confidence level. In 24 virtually all respondents provided at least one of the services listed, as illustrated by the results for the any of the above row, while in 29 all groups are less likely to provide any of the listed services. The section of the table provided by others in the firm shows that principals are now more likely to buy expertise into the firm rather than provide all the services themselves. This is particularly true for firms, who have evidently have hired more staff able to provide services for SMSF clients in a number of ways since 24 2

23 Table 13: Specific self-managed super fund services that are outsourced Outsourced services: CPA public practitioners Financial planners Randoms CPAs Total 24 (%) 29 (%) 24 (%) 29 (%) 24 (%) 29 (%) 24 (%) 29 (%) Fund establishment Preparation of trust deeds Administration Audit Investment management Insurance Broad investment advice Specific product recommendations Training to trustees on their obligations Any of the above Blue figures indicate statistically significant differences to at least the 9 per cent confidence level. The trend to buying in expertise seems to also be supported by the fact that there is almost universal outsourcing of services among the respondents providing advice to clients about their self-managed superannuation funds. Not surprisingly the services most prominently outsourced include preparation of trust deeds (89 per cent) and audit (69 per cent). Respondents were also asked if there were any other services in relation to SMSFs that were also offered, either internally or externally, apart from the services listed in the previous section. Financial planners (45 per cent) and public practitioners (51 per cent) are each likely to offer other services on SMSFs. Among the other SMSF services offered, taxation (77 per cent) and general accounting services (4 per cent) were generally nominated by public practitioners, whereas the randomly selected financial planners mostly nominated investment strategies (31 per cent) and retirement planning advice (22 per cent). practitioners who outsource particular services were also asked who they outsourced these services to. Table shows that they tend to favour external financial planners for: Specific product recommendations (56 per cent) Broad investment advice (61 per cent) Investment management (49 per cent). SMSF specialists were popular among public practitioners for the following services: Fund establishment (61 per cent) Preparation of trust deeds (58 per cent) Administration (46 per cent) Audit (58 per cent) Training to trustees on their obligations (5 per cent). 21

24 Table 14: To whom do practitioners outsource their self-managed super fund services? Outsourced services: External financial planner Directed by public practitioners to: SMSF specialist Other (BASE) No. 24 (%) 29 (%) 24 (%) 29 (%) 24 (%) 29 (%) 24 (%) 29 (%) Fund establishment Preparation of trust deeds Administration Audit Investment management Insurance Broad investment advice Specific product recommendations Training to trustees on their obligations Blue figures indicate statistically significant differences to at least the 9 per cent confidence level. It is interesting to note that the only outsourced service where an external financial planner or SMSF specialist is not the most favoured option is insurance, where 45 per cent of public practitioners prefer another option. 2.7 Breakdown of self-managed super funds by investment type In 29 there is little difference between the different groups in terms of the investment type breakdown. This was also found in 24. Assets such as private property or collectables remain a lot less popular than other kinds of assets for investment. Graph : Estimated breakdown of self-managed super funds by investment type % Equities Business real property Cash and fixed interest Others types of investment, such as property or collectables public practitioners Random financial planners financial planners Total Graph 16 shows that there is even more use of managed funds in conjunction with SMSFs than there was in

25 Graph 16: Do you use managed funds in conjunction with self-managed super funds for your clients? % public practitioners Random financial planner financial planner Total Yes No All advisers and SMSF service providers were asked if they had clients who had borrowed via instalment warrants within their SMSF. It was found that only around 3 per cent of SMSF clients have used instalment warrants as a borrowing option to make investments. Table : How clients self-managed super funds are administered How the client s SMSF is administered: CPA public practitioners Financial planners Randoms CPAs Total 24 (%) 29 (%) 24 (%) 29 (%) 24 (%) 29 (%) 24 (%) 29 (%) Via an internal administration system Via a commercially available admin package Wraps It is outsourced They do it themselves Blue figures indicate statistically significant differences to at least the 9 per cent confidence level. Table shows that wraps have gained further popularity amongst financial planners to a degree from 24 to

26 2.8 Impact of the global financial crisis on self-managed super funds As with the consumers surveyed in this research, the public practitioners and financial planners were asked how they felt the GFC had affected the extent to which their clients invested in the different asset classes. Overall there were very similar responses across the board and these are captured in Graph 17. Graph 17: Impact of the GFC on clients investment decisions % Equities 1 Business real property Cash and fixed interest 1 Other types of investments More likely now to invest in Less likely now to invest in No change Don t know Advisers and consumers have very similar views on how the GFC has affected consumers investment decisions. Approximately 35 per cent of consumers said that they felt the GFC had not affected their investment decisions, with the same view held by advisers, although to a much greater extent. Respondents were also more likely to say that the global financial crisis has made their clients seek more advice rather than less. (Graph 18). This was true for both public practitioners and financial planners, albeit to a slightly greater extent among the financial planners. Forty-one per cent also said that the GFC had not changed the amount of advice their clients are seeking. This corresponds with the 46 per cent of consumers who said the same thing when asked this question (Graph 9). 24

27 Graph 18: How the GFC has affected the amount of advice sought by clients % Increased Decreased Not changed Don t know public practitioners Random financial planners financial planners Total 25

28 3. Outcomes and opportunities 3.1 Self-managed super funds now dominate the retirement savings space The number of SMSFs still continues to increase steadily, with just on 29, established in the year to June, taking the total number of SMSFs to just over 4,. With approximately $332 billion in assets, SMSFs now represent the largest segment, by asset value, of the superannuation market. 3.2 Numbers of advisers moving into self-managed super funds continue to grow In 24, 35 per cent of public practitioners were providing SMSF advice or services. By 29, this had increased to 47 per cent. Similarly in 24, 59 per cent of financial planners provided SMSF advice or services but in 29 that number had increased to 82 per cent. A further 8 per cent of financial planners also indicated that although they do not yet provide these services, they expect or would like to provide them. This means that 9 per cent of financial planners either currently provide SMSF services and advice or would like to provide them in the future. The responses of randomly selected financial planners indicate a similar trend, with 55 per cent providing advice or services in 24 and 68 per cent in 29, with a further 11 per cent currently indicating they expect to provide those services or would like to do so. Graph 19: Do you provide self-managed super fund advice or services? % public practitioners Random financial planners financial planners Total Yes No, but expect or would like to No, and don t expect to This figure again demonstrate that even though the numbers of SMSFs continue to grow, so does the number of advisers moving into this space. 26

29 3.3 How accountants and CPAs are viewed as sources of advice Consistent with the findings in 24, those consumers with an opinion, particularly those who have an SMSF, are much more likely to view accountants favourably than unfavourably. Graph 2: Consumer opinion of accountants as a source of advice on self-managed super funds % Have a self-managed super fund Do not have a self-managed super fund Positive Negative No opinion Small business owners are more likely than individuals to have an opinion and, while only a minority had a negative opinion, just over 5 per cent of those surveyed had a positive opinion of accountants as a source for SMSF advice. Table 16: The opinions of small business owners and individuals on accountants as a source of advice about self-managed super funds Opinion of accountants Have an SMSF Small business owners % Individuals % Positive Negative 16 No opinion Blue figures indicate statistically significant differences to at least the 9 per cent confidence level. The main reasons given for a positive opinion of accountants were: Knowledgeable / know what they re doing /experts ( per cent) Offer sound advice / happy with their advice (23 per cent). Advisers and service providers were also asked if they consider members to be the leaders in providing advice on SMSFs. Not surprisingly nearly 8 per cent of public practitioners and 62 per cent of financial planners said yes. However, nearly 6 per cent of randomly selected financial planners also said yes. 27

30 Graph 21: Do you believe CPAs are seen as leaders in providing advice about self-managed super funds? % public practitioners Random financial planners financial planners Total Yes No Don t know This demonstrates that members remain not only a trusted source of professional advice for consumers, but that they are acknowledged by those in the industry as being leaders in providing SMSF advice. Furthermore, when asked if should position CPAs as leaders for SMSF advice nearly half of randomly selected financial planners said yes, as demonstrated by Graph 22. Graph 22: Should position CPAs as leaders for advice about self-managed super funds? % public practitioners Random financial planners financial planners Total Yes No Don t know 28

31 The main reasons given for this included: CPAs are well qualified and able to provide such advice. This includes the fact that they have a holistic knowledge of their client s needs it s what their clients want, need and expect. This recognition presents an opportunity for members to continue to demonstrate their expertise and leadership in being trusted and professional advisers for consumers in respect of SMSFs. 3.4 Opportunities for advisers Clearly this is a growing market and the strongest attraction to establishing an SMSF is control. Consumers want to take control of their own financial security in retirement. However, this brings a burden of responsibility. It is here that the greatest opportunities lie for service providers and financial advisers. The ATO has expressed concern that trustees in general currently lack the knowledge and expertise needed to run their own SMSF. The findings of this research would support that concern, given the following statistics: only 51 per cent of consumers stated they were a trustee of their SMSF sixty-nine per cent still said they felt they had a good understanding of their obligations around 4 per cent of all trustees sampled were unsure when asked a series of questions to assess their knowledge and understanding of their obligations. While 52 per cent of public practitioner and 92 per cent of financial planners currently provide training to the trustees on their obligations, our research shows that it is essential that advisers continue to provide this service to their clients. It also shows that advisers must emphasise the importance to their clients, who are trustees, of understanding their obligations. Helping trustees to understand their obligations provides an opportunity to build an even stronger and longer lasting relationship between adviser and client. 29

32 CPA /29