Why SMSFs are the Greatest Retirement Income System on Earth and Why Advisers fail to make the most of their SMSF Opportunity? – By Grant Abbott CEO LightYear Group Pty Ltd.

This is my 25th year in SMSF advising and teaching and it has been amazing to see how they have grown from quirky little superannuation funds, dismissed by their big brothers, to effectively take the biggest slice of the market. But don’t listen to me, let the Association of Super Funds Australia May 2019 Super Statistics do the talking:

Table One: Super Funds Overview

Sit and really take a long look at those figures. What do they tell you? Based on these the average member balance in an Industry super fund is $58,449, Retail super is $54,650 WHILE SMSFs have an average member balance of $680,910! By the way I have not added a zero to in with some fake accounting, this is the real deal – the average SMSF account is more than 10X that of industry and retail super funds.

But it gets better, back to ASFA May 2019 Super Statistics:

Table Two: Future Super Assets

So what can we make of this and let’s put a time line around it. I am in no hurry to retire and expect to keep on working until 2040 at least and would love to get to 50 Years in SMSFs. Anyway, let’s look at Treasury forecasts, which have always been on the light side. If SMSFs continue to hold 27% of superannuation assets (based on ASFA figures) then by 2030 SMSFs will have $1,370 Bn in assets and by 2040 it will be $2,335 Bn or just under 3x the size of the current SMSF market.

Now I know that the amount will be much higher for Four reasons:

1. The next generations coming into SMSFs, Generation X and the Millennials have a lot more superannuation assets than the early SMSF adopters had;

2. Costs of administration of a SMSF will drop significantly over time thanks to technology;

3. The increase in the number of members to six and possibly more will see younger family members joining Family SMSFs at the expense of industry and retail superannuation. This is true superannuation succession planning;

4. The average age of SMSF members is increasing year by year with member accounts in these funds being held to death. Compare that to the average member balance of retail and industry super funds for older members. Their accounts generally run out before they die.

But worst case, if we stick with Treasury estimates, by 2040 SMSFs will have $2.3 Trillion in assets. That is a whole lot of money, assets and family wealth.

Now Let’s Stop and Look at the Rest of the World

Table Three: Global Pension Assets

Source: Global Pension Assets Study - 2018 - Willis Towers Watson

Now Australia is doing well but how about SMSFs. SMSFs representing 1.1 M members holds as much as the entire German pension system and is running close to South Korea if the $A was not so weak. SMSFs are punching well above their weight. Given that when I started in SMSFs in 1994 there were 70,000 SMSFs (110,000 members) with $11.4Bn in assets, the average member balance was $104,300. Much better than industry and retail super funds today but today’s SMSFs are kings in the wealth creation stakes and tomorrow’s even better.

That is Why SMSFs are the Greatest Retirement Income System on Earth.

So that takes me to my next question. If SMSFs are the best retirement income system on Earth, with an average member balance of over $600,000 and an expected increase of SMSF assets of 300% over the next 20 years where are all the advisers with super successful businesses!

SURELY SMSF = OPPORTUNITY?

Perhaps SMSFs are a Failed and Impossible Opportunity for Advisers?

When you have been in any industry for 25 years you see a lot of comings and goings. I have seen great SMSF advisers give it all up for corporation superannuation, only to be left in serious business trouble nowadays. On the other hand, I have seen small boutiques take my advice on how to set up a successful SMSF advice business and do well for 15 or more years. Then there are a whole lot of in-betweens with advisers too scared to delve into SMSFs because lawyers and industry super fund lobbyists tell advisers it’s too hard, complex and if you do something wrong you will lose your shirt, life and be castigated by society.

Now that may happen with early release and property promoters doing the wrong thing but if you ask me, it’s a beat up for industry super funds scared at losing assets to SMSFs and well lawyers, to bludgeon the use of their services at an expensive hourly rate.

That got me thinking and I like to think and strategise, everyone knows that. How is it that financial planners find it so easy to sell retail super funds and not SMSFs? And why do accountants love the accounting side of SMSFs, something they know and understand but don’t get into real in-depth strategy? Is there a brick wall perhaps that is too hard to cross?

Here is my experienced view. It comes down to two things: continuous learning and strategic systems.

1. Continuous Learning – well the right Learning Continuously

SMSFs are not something that a high school student decides to do off the cuff like an engineer, doctor or graphic artist. For 90% of SMSF industry participants they have come from an accounting, financial planning, legal or other financial service background. To get into SMSF advice they need to complete a course that meets the SMSF training package under the Financial Services guidelines. And this is where the problem lies, knowing the laws, regulations and Commissioner’s guidelines and rulings is imperative – the training package requires it. Yet so few courses provide that experiential learning, meaning the professional student misses out on the one thing that is most important in SMSF advising – CONFIDENCE.

Without confidence and a knowledge of where to look to solve a problem or better still build a successful strategy for a sizable SMSF client, frustration and despair ultimately set in. Which is why I am a great believer in the independent FASEA regime. Finally, the continuous learning (CPD) is taken away from the Associations. Sure, they have their own requirements to be a member but at the end of the day a SMSF adviser needs to meet FASEA or they won’t be in business.

So not only is the right learning – laws, regulations, court cases and ATO legal rulings crucial but also CPD that is directed toward strategies and client application. Tell me when was the last time that you went to a CPD session on the use of a superannuation unrelated investment trust for property development or how to build an LRBA instalment warrant for share transfers into a SMSF. Not rocket science but I would have thought most people would love to have that in their armoury.

Let’s face it time is of the essence and if you are going to spend an hour or two on continuous learning surely it should be productive, increase your intellectual capital, profitable and dynamic rather than plain jane stuff that does not meet any of their criteria. It is learning not being bored!

AND while we are here, can I give you a quote from Wikipedia on what a Learning Organisation is:

“In business management, a learning organization is a company that facilitates the learning of its members and continuously transforms itself The concept was coined through the work and research of Peter Senge and his colleagues.”.

For me I have always built a Learning Orgranisation and even if you are a small professional services firm or a multi-partner accounting firm, if learning does not go all the way down the knowledge gaps will cripple your company or firm.

2. Strategic Systems

I have an epiphany to share with you and we can give thanks to Michael Gerber on that one. I have read Michael’s E-Myth books several times and hired him to speak to 50 SMSF advisers in Hawaii in 2014. Now I have been told, by many of you that you love my strategies, highly motivated by them but when push comes to shove, you don’t know how to do them or put them together.

In a heart to heart with Michael I expressed my frustration on that score, and he said that a SMSF strategy like a wealth building strategy can be broken down into its components and automated. It should be fool proof, compliant, easy to use and serve a higher purpose such as to maximise wealth, grow a family’s wealth, limit the distribution of benefits to a deceased member’s bloodline and well you get the gist.

And so I started breaking down my strategies into components and then set about automating them. The problem was that the systems I was running on were too rigid and could not be easily adapted for dynamic strategies and the multitude and myriad of strategic possibilities that may be needed.

But that changed in 2018 when I went back to the drawing board and started to break down my best SMSF strategies into their components – right from the rulings, laws, minutes, resolutions, trusts and well the whole works. Then with my team I have been able to feed them into the world’s most sophisticated legal precedent and document system to produce anything from basic to super sophisticated strategies in minutes that are fool proof, compliant, highly efficient and profitable for the adviser or firm.

So Michael thank you for the birth of Strategy Automation. At LightYear Docs we are in early stages yet but soon an accounting, financial planning or SMSF administrator or adviser will have a wide range of fully implementable and executable strategies to roll out to clients. And that goes from end to end including client communications, client interviews and data

capture, Statements of Advice and full documentation (and more is always better than less) putting the strategy in place.

Our first is a related party LRBA meeting the Commissioner’s guidelines in PCG 2016/5 and has nine legal compliance documents and requirements. All able to be completed in minutes for a low cost of only $450 for the entire process and strategy.

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