The rise of SMSF administration

The SMSF administration industry has started a long journey of transformation from a cottage industry to a profession.

The self-managed superannuation fund (SMSF) administration industry has started a long journey of transformation from a cottage industry to a profession.

The Association of Superannuation Funds of Australia’s statistics show that SMSF and small APRA funds have total funds under management of $372 billion — nearly 31 per cent of the $1,200 billion superannuation industry.

Given the size of the SMSF segment and its continued projected growth, it is no wonder new entrants are challenging the traditional monopoly accountants have held in the SMSF administration space.

Professional SMSF administration services have been quietly evolving during recent times, and pose something of a threat to the traditional ‘once-a-year’ approach of accountants.

Of course, any threat to the administration portion of a SMSF with an accountant needs to be taken in context — it is notoriously difficult to penetrate this market because trustees do not go to tender for administration services.

In fact, a lot of trustees are not even aware of the existence of professional administrators — and even if they were, it is highly unlikely they would leave their accountant.

One reason is the difficulty in assessing the cost of running a SMSF until the end of the year, and the difficulty of making comparisons with off-the-shelf solutions.

The other reason is the inherent loyalty towards the person that set up the SMSF in the first place.

But there is no doubt that trustees will seek more financial advice and this will generate some exposure for the professional administrators.

Regardless, SMSF administration is no longer simply seen as a task that must be performed at the end of the year with minimal

ongoing service. In fact, it is starting to develop as a truly comprehensive administration service like that of other administration services, notably platforms/wraps.

This is potentially good news for SMSF trustees because they will benefit from greater competition and what usually comes with it: competitive prices, more value for services, a wider selection of providers and increased services to choose from.

As SMSF trustees become more financially literate and start to seek more investment advice, they will demand better access to information and tools to help them make decisions in conjunction with their financial advisers.

This is why administration providers are bringing a new approach that offers improved services including ongoing administration with real-time transaction and reporting capabilities.

So where does this leave the accountants? Can more competition from administration providers be better for accountants?

On the face of it, it doesn’t appear so. But further analysis suggests more competition may actually provide opportunities for accountants.

Accountants who can partner with administration providers can potentially benefit from performing more value-added accounting tasks such as tax advice and financial planning.

While some accountants may see a reduction in administrative/book-keeping tasks, overall you can expect their businesses to grow as they provide more meaningful services to their clients and diversify their revenue.

An important driver of this change in SMSF administration services has been the advances in technology. Some SMSF providers have invested in technology to provide online capabilities that match those of administration platform providers.

Having the ability to communicate and transact online is providing the efficiencies and economies of scale for these new administration providers to compete.

In this fast-paced, demanding and technologically-savvy world, it is pretty much a requirement that administrators have the capabilities to deliver and receive information as efficiently as possible.

SMSF administrators are also able to record transactional information through interfaces with financial institutions. Likewise, data feeds provide pricing and security information to update portfolio valuations.

This means up-to-date information and reporting.

Advisers want to be able to service their clients, not act as a pseudo administration front end, so the aim of most administration providers has been to make it easy for the adviser to provide the advice and not get caught up in paperwork.

This sounds eerily familiar: the investment and superannuation administration industries have both had to go through this process over the last 15 years.

Whether accountants will recognise the opportunities in the SMSF space remains to be seen. There is no doubt the more entrepreneurial practices have been able to realise efficiencies within their business.

However, a large number seem to enjoy the ‘shoe box’ approach: fleeting interactions with the client coupled with large amounts of cash that sit around uninvested.

The SMSF administration landscape is undergoing a change, and accountants and advisers will continue to be a big part of it.

However, those who are inefficient will soon struggle as their neighbours embrace technology and start adding valuable services for their clients.

Patrick Jackson is head of operations and business solutions at Fiducian Portfolio Services.