The 2011 financial year is already becoming one of the most important year’s to shape the future of the superannuation and financial services industries. SMSFs are a big part of this transformation, even though it was stated by the chair of the Super System Panel, Mr. Jeremy Cooper that the SMSF industry is in “pretty good shape”.
My observations within the industry over the past 14+ years has seen significant improvements to automation in data to produce both statutory and investment information for trustees. I remember the “shoe box” days, which not only did we have to trawl through paperwork, but did manual revaluations of shares by way of journal entries… how times have changed!!
However, whilst software providers strive for greater automation in our work functions, the question must be asked… Are we seeing industry-wide adoption of this technology and more importantly, how are we integrating services to improve efficiency and the client experience.
I have seen the SMSF industry evolve through a process of:
Innovation with web-based activities, automation through delivery of transactions, integration with banks, brokers and platforms, and adoption coming through specialist SMSF administrators (and some accounting businesses) offering scalable solutions to trustees.
The diagram at the top of the page I believe covers many of the segments that technology impacts with SMSFs. I have outlined how I see these service segments currently operate and provide my views on the automation process, and the need for further integration by adopting technology even more than we are today.
Compliance Software - the domain of the accounting profession (and fund administrators), this provides to trustees not only statutory reporting (e.g. SMSF annual return and financials), service providers are also using investment reporting within the software as part of their client offering to trustees and their advisers. For some service providers, multi-fund processing and data automation are combining to provide significant advancements in how efficiently work can be done. Web-based activity is also on the rise with software providers launching products such as BGL Portal, SuperMate and Class Super.
Data Automation / Portfolio Reporting – the use of portfolio reporting directly (not using a Wrap platform) for clients through financial planning systems such as xplan is also on the rise as some planners look more to direct investment portfolio for their clients. This along with other portfolio reporting systems such as Praemium and OneVue have been the market leaders in developing higher levels of automation for portfolio reporting and integration into compliance systems such as BGL.
Wrap / Investment Platforms – platforms have been a key part of many financial advisory firms for many years. The SMSF industry is starting to see a better automated flow of information to not only suit the financial adviser, but also the fund administrator. The challenge for the accounting industry is to stop using the “lazy” option for reporting wrap platform investments (as a single unit) and start to embrace technology to deliver appropriate client reporting. Technology should allow for automation of all Wrap data to be imported into an SMSF software package as quickly as it takes to do journal entries to show the income and expenses of the Wrap Investment as a single unit investment.
Bank-data automation – obtaining bank data has always been the key to service providers from both an investment and compliance perspective as it is the “cash-hub” of the SMSF. Web-services feeds of bank data are become common practice with banks such as Macquarie, Westpac/St George and BWA to name a few… The accounting profession have long used intermediaries such as Banklink to aggregate bank data from a variety of sources; the ability to map and memorise transactions has been a powerful tool for improving efficiency. It will be interesting to watch the continuing evolution of bank data integration, as we are today (as a community) already big users of online banking and the technology that it brings.
Shares/Equities - A large part of the SMSF market, we have seen the CHESS Sponsor system revolutionise how we deal with stock market transactions. The SMSF industry has been a benefactor of this, with levels of automation around executions for buys & sells coming into portfolio systems such as Praemium & Iress.
Investment Software /Financial Data – We already see high levels of use within both the accounting and financial planning industry for financial data including share prices and asset allocation information. We haven’t seen significant integration into investment software however to be able to manage portfolios and more importantly analyse fund performance against the key objectives of the fund’s investment strategy.
Other Service Providers & Suppliers – Online trust deed providers appear to have taken the lead with integration to the compliance software providers. Some deed providers are now integrating their SMSF trust deeds into web-access areas such as BGL Portal and Class Super. Further advancements appear to be in the pipeline with actuarial integration with some software providers, along with far more automated processes to prepare and review information required to conduct the annual independent audit.
The Cooper Review in the Phase Three Issues Paper challenged the SMSF industry to consider technology to further drive down costs, improve efficiency in administration and improve regulation (Section 18.2). The Panel’s view in the Phase Three Preliminary Report was that the industry required “fewer moving parts and greater automation”. The need for greater use of technology formed part of Principle 10, in their Ten guiding principles for SMSFs.
It appears commonly accepted that there is a need for greater automation and use of technology within SMSFs. However, with the accounting industry being “slow adopters” of technology, how long will it be until we see these changes and advancements of technology within the SMSF industry? Does it need a generation change of the profession?
To put this in some context, let’s look at the table below showing number of SMSFs per tax agent:
This table is an extract from the Statistical Report into SMSFs prepared for Phase Three of the Super System Review. The statistics clearly show a “cottage industry” in terms of preparation of work for SMSF trustees by tax agents. With 47% (yes, nearly half of all SMSFs!!) of tax agents dealing with less than 5 funds (on their lodgement program), there is little scope for any adoption of automation or integration whilst the industry remains so fragmented.
When I met with Jeremy Cooper this time last year, we discussed the topic of scale and wondered what a super fund business would look like that administered 50,000 SMSFs? With the largest administrator in the country at around 6,000 SMSFs, it would require significant change (and innovation) within the industry to take us to delivering these type of numbers by a service provider. The reality is that such a large-scale service provider will exist into the future where the number of SMSFs continue to grow.
The question from the above table, is at what number of SMSFs does automation and industry integration provide a tangible business benefit to change? The topic of outsourcing has been around for many years now, but obviously the take up in this area is still very low as well…
Push & Pull?
The focus to date has very much been how you can “pull” data into compliance and portfolio systems. With an aging population, we know that retirement modelling and longevity risk is becoming a key focus. From a technology point of view, this is going to require administration service providers to be able to “push” automated data back to financial advisers to work with clients on these issues. At this stage, I know of very few providers offering a push/pull solution with data to integrate between the accounting and financial planning professions.
It is hard to fathom that there are now more than 500,000,000 active users of Facebook around the world. Social media has changed how we use the internet, including how integration can work with your Twitter account linking to your Facebook page, to your LinkedIn page, and embedding videos on YouTube or images from Flickr. It will be interesting to see how far away the financial services & accounting professions are away from significant innovation in how we as service providers prepare our work and share information with clients.
I’d be interested to hear the thoughts of people out there as to what technology they are using to operate SMSFs (both accounting and financial services) and discuss some of the benefits and limitations that they see in offering clients a fully integrated solution.
