WHILE most financial planners probably understand the essentials of handling the accumulation phase of self-managed superannuation funds (SMSF), they will need to know a great deal more about the pension phase, according to Sealcorp’s senior technical manager Brian Ashenden.
Ashenden says this will be the emphasis of his address to theFinancial Planning Association(FPA) convention in Adelaide this week, in circumstances where planners are likely to find an increasing number of their clients, particularly baby boomers, moving into the pension phase.
He says while handling the pension phase of a public scheme might be relatively easy, a number of issues arise with respect to self-managed superannuation funds, and that planners need to understand what is required, including ensuring that clients get the right amount of money.
Ashenden says that in circumstances where the role of accountants has been altered by the FSR licensing requirements, financial planners will need to play a greater role in providing advice on SMSFs.
“Accountants will still have a role to play, but unless they are licensed that role will be limited,” he says.
Ashenden says the degree to which the changed role of accountants will impact on the industry and, in particular, the role of financial planners in establishing and maintaining SMSFs has yet to be determined and an accurate picture is unlikely to emerge until the new FSR regime is fully in place.
Integratec’s John Prowse supports a number of Ashenden’s views but argues that accountants are likely to remain fundamental to SMSFs.
Prowse says that while the new FSR licensing requirements may see the exit of smaller accountancy firms, the mid-size and larger firms will remain operating under their own licences or as agents for a licence-holder.
“Medium-size accountancy firms will continue to dominate the SMSF arena, with financial planners being at a disadvantage because many of them are still working on a commission basis, which some clients might regard as a disincentive,” he says.
Prowse says that the commission issue is highly relevant to many people who choose to pursue an SMSF, because many of them are motivated to do so by what they regard as the high costs associated with some managed funds.
“It is hard to pinpoint why there has been such strong growth in SMSFs but at least some of it has got to do with fees,” he says.
“That is understandable in circumstances where MERs on some retail funds can be as high as 3 per cent and when you weigh up what 3 per cent represents on $100,000 and then extrapolate that cost over, say, 10 years, you can understand why there is some dissatisfaction,” Prowse says.
He says MERs are much higher than they need to be and as people become more educated in superannuation, then fees and charges become a real issue.
Prowse believes the popularity of SMSFs is owed in part to the desire of some people to avoid the heavy fees and charges imposed by managed funds, as well as an increasing understanding that you don’t need to be an expert in investments and equities or maintain a close eye on the market.
He says the underlying requirement of any SMSF is a well-diversified portfolio and the willingness to hold on to it.
While Prowse believes self-funded superannuation is likely to continue as a growth area, Ashenden is less certain and wonders whether the levels of growth recorded in recent years can be sustained.
“Take-up seemed to accelerate over the past two years and I don’t know about that continuing,” he says.
