Self managed doesn’t equal self administered: finding a better way to get the most out of SMSFs
By Darren Speirs, Head of Portfolio Solutions (Garradin), Bravura Solutions.
A shift in the demographic profile and consumer expectations of those who opt for SMSFs is transforming the way in which these funds are administered.
Traditionally, the SMSF market has been dominated by baby boomers looking for greater control and improved fund performance. Many early adopters were retirees with the time and interest to take on portfolio administration.
Typically, SMSF trustees have managed their portfolios either out of the “shoe box” or by using a wrap service for day-to-day administration. Often, an accountant has been engaged to perform end of year reporting.
However, the shoe box approach is time consuming, while wrap is expensive due to FUM-based fees that include custodial costs. Further, there is a disjunction between portfolio administration and accounting functions, which prevents a holistic view of the fund, its investments and compliance obligations.
A Macquarie research study, “SMSF Active Management Report 2013”, reveals a trend in the uptake of SMSFs that stands to revolutionise their administration. In 2013, a significant portion of new SMSFs were setup by individuals under 30 years old.
While Gen Y shares similar motivations for establishing an SMSF, their expectations about control and service delivery are very different. Gen Y’s do not have the time or inclination to pursue a shoe box strategy or deal with disparate products and services.
Just as technology is applied to enhance almost every aspect of their daily life, there is an increasing expectation among Gen Y’s – and other demographic groups – for a seamless SMSF solution.
In this new landscape, self management no longer equates to self administration. And relinquishing the shoe box and paying a professional to manage your SMSF from end-to-end does not mean a loss of control, in fact, quite the opposite.
Delegating administration and end of year accounting to a specialist SMSF administrator, frees up time-poor trustees, enabling them to focus on making informed investment choices.
Astute accountancy and advisory firms are already seeking to deliver their clients a one stop SMSF service and this is a growing area of SMSF administration.
Yet these firms are hampered by the enduring perception of portfolio administration and accounting as separate functions. As a result, they are struggling with multiple systems, high variable costs and scale limitations.
Increasingly, savvy accountancy and advisory firms are looking to software vendors to offer functionally rich, cloud-based and cost effective solutions. Emerging onto the market are cloud-based software applications capable of managing portfolio administration and accounting functions for all their needs – SMSFs, trusts and estates and IMAs – via one unified system. Such systems add value by delivering a cheaper, fixed price proposition that ensures compliance and affords performance attribution through rich, consolidated reporting and modelling.