In this guide
The key reason people cite for choosing to run their own self-managed super fund (SMSF) is more control over their investments. But that doesn’t mean they don’t need or value professional advice. They do.
The problem is, they can’t always get what they want.
During a period of ongoing economic and financial market uncertainty, the number of SMSFs without a financial adviser and with unmet advice needs continues to grow rapidly. The 2023 Vanguard/Investment Trends SMSF report found 270,000 SMSFs had unmet advice needs in 2023, up 15% on the previous year.
At the same time, SMSFs using financial advisers has stagnated since 2020, with only 27% saying they had sought advice in the past year. This might seem contradictory given the unmet demand for advice, so what’s going on?
Barriers to seeking advice
The Vanguard/Investment Trends report found one in five non-advised SMSFs was open to seeking financial advice in the future, most notably female trustees and those entering the transition-to-retirement phase.
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However, even those open to seeking advice said unclear cost, a lack of trust in advisers or previous experience with financial advisers were barriers to doing so.
Part of the problem is that there is no one place people go for information on advice fees and what they can expect to pay. Industry surveys of average adviser fees, and the range of fees, vary widely, but all agree the cost of advice has increased substantially.
As an indication of what to expect, the 2023 Investment Trends Business Model Report found financial advisers on average had increased upfront fees by 25% to $4,000 since 2022. Over the same period, ongoing relationship fees were up 18% to $4,700. You may pay less for more limited advice, but it pays to shop around.
As readers already know, SuperGuide’s SMSF newsletter aims to deliver independent, comprehensive information about superannuation and issues of direct relevance to SMSFs at an affordable cost.
The Quality of Advice Review
Consumer concerns about the cost of advice and a lack of transparency are well founded. Various industry submissions to the government’s Quality of Advice Review (QAR) showed costs have indeed been rising significantly, due in part to an increase in government regulation and compliance obligations imposed on advisers in the wake of the damaging Banking Royal Commission.
The QAR final report released in early 2023 contained recommendations designed to give Australians access to affordable financial advice. In December 2023, the government issued its final response with legislation due in 2024.
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Key priorities for the government’s planned reforms are increasing the pool of qualified advisers to make advice easier to access, streamlining the documentation required when providing advice, and making it easier to access retirement income advice by allowing super funds to provide more information.
What advice do SMSFs want most?
When it comes to the types of financial advice SMSF trustees say they need most, the Vanguard/Investment Trends report unearthed some interesting differences between advised and non-advised trustees.
Advised SMSFs said finding buying opportunities was the area they needed advice the most. Whereas non-advised trustees reported needing:
- Strategic advice
- Support to understand changes in legislation
- Inheritance and estate planning
- SMSF pension strategies
- Tax planning
- Contribution strategies
- Identifying undervalued assets.
Quite the list. Paperwork and administration were also reported as key challenges, along with finding time to research investments and completing/submitting end of year regulatory and tax returns. Sound familiar?
You can find information on these topics and more on SuperGuide. However, we also recommend you seek independent financial advice for more complex needs.
Adviser numbers falling
It’s generally accepted that cost and a lack of trust in financial advisers are the main reasons behind the growing numbers of SMSFs with unmet advice needs. But that ignores the elephant in the room – the rapid decline in adviser numbers in recent years.
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In May 2023 there were 15,700 financial advisers registered with the industry regulator, the Australian Securities and Investments Commission (ASIC). This is down from 16,700 a year earlier and down more than one third (37%) on the long-term average of 24,930 prior to June 2019 when major Professional Standards Reforms came into effect.
An increase in the compliance burden on advisers came at a time when many large institutions were winding back their financial advice businesses or withdrawing from the market altogether in the wake of the Banking Royal Commission.
Those advisers who remain active have cut costs, increased fees and taken on more clients (up from 113, on average, in 2022 to 120 in 2023).
It is hoped this decline in numbers will reverse once the QAR reforms are legislated and the barriers to providing affordable advice at scale are lowered. Allowing super funds to play a bigger role in providing advice should also increase competition in the industry generally.
A shift to scaled and more affordable advice may also hasten another trend – growing numbers of independent advisers enabled by new technology.
The role of technology
While SMSF trustees may need access to financial advice throughout the life of their fund, the need is most acute in the run-up to retirement.
With over five million Australians approaching retirement and fewer than 16,000 professional financial advisers, technology will play an important role in bridging the gap.
Already, many advisers are using a hybrid model combining digital tools with face-to-face advice. Digital access to client financial data, automation and advances in artificial intelligence (AI) all have the potential to improve consumer access to timely, personalised, more affordable advice.
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