Multiple benefits for SMSF trustees

As digitally savvy Australians take charge of their retirement savings, investors are demanding online solutions that combine professional management with transparency and hands-on control.

This is driving the proliferation of Self Managed Superannuation Funds (SMSFs), whose trustees are increasingly managing their wealth through Separately Managed Accounts (SMAs) hosted on online investment platforms.

For trustees, investing through an SMA allows them to customise their portfolios and own the assets directly, thereby gaining greater flexibility, cost efficiencies and tax advantages that they can find with mutual funds and similar pooled vehicles.

For financial advisers, managing their practice through an investment platform lets them access a wealth of investment experience while outsourcing administration. This frees them up to concentrate on doing what they do best – giving their clients personal service.

Martin Morris, head of distribution for Praemium, a market-leading provider of managed account investment platforms, says technically adept trustees expect their advisers to offer the same quality of digital experience they enjoy with other service providers.

‘‘They’re comfortable putting their credit card into the internet, they’re comfortable buying things online and they’ve got a very high propensity to self-serve,’’ he says.

Managed Accounts platforms provide this experience, enabling trustees to monitor their portfolios 24/7 via an investor portal that carries their adviser’s branding but connects seamlessly through to the platform.

High-net-worth (HNW) individuals have similar expectations. Moreover, platforms hold the potential to enable advisers in attracting and assisting the 80 per cent of Australians who do not currently use a financial adviser, yet have significant financial concerns and unmet needs.

SMSFs are growing rapidly both in numbers and total funds. As of mid-2018, Australian superannuation funds held $2.709 trillion of assets, and $752 billion of that – more than one dollar in every four – was in SMSFs.

In the second quarter of 2018, 13 per cent of all new SMSFs were established by people aged between 25 and 34, up from 8.2 per cent five years earlier. With Millennials entering their prime earning years, this trend is tipped to accelerate.

SMSF trustees will also be among the key recipients of the largest intergenerational wealth transfer in history, which is projected to total around $3 trillion dollars over the coming decade.

Yet 90 per cent of adults change their adviser once they inherit, suggesting financial advisers face a major challenge – and opportunity.

Enthusiasm for SMAs is growing pace. Morris points to a 2016 Morgan Stanley report that predicted SMAs would deliver 75 per cent of new flows into the wealth management industry by 2020.

SMAs offer multiple benefits, particularly in the wake of the global financial crisis of 2008, he says.

‘‘Investors want more transparency, they want more control and they want more personalisation of the portfolio from the tax perspective.’’

Online investment platforms have gained popularity with the advice industry since the Future of Financial Advice (FOFA) reforms of 2013.

‘‘To cope with the additional levels of compliance and reporting and disclosure, many adviser practices opted to outsource the huge burden of administration,’’ he says.

Praemium’s managed accounts platform enables advice firms to outsource many key functions including professional investment portfolio management, administration, corporate actions and tax management of listed securities and investment reporting.

Morris says Praemium pioneered the first SMA in Australia in 2005, in conjunction with BlackRock.

‘‘Four years later, BlackRock exited the managed account market and we took on the custodian environment from them. So we then became the full solution,’’ he says.

For SMSF Trustees and their financial advisers, Praemium provides a choice of managed account solutions on the one integrated platform ranging from simple SMAs where investment management can be totally outsourced to more tailored solutions including Individually Managed Accounts (IMAs), Virtual Managed Accounts (VMAs) and Unified Managed Accounts where advisers and Trustees can have greater ongoing involvement in ongoing investment selection. Already, more than $110 billion of assets are currently reported on through Praemium’s platform including more than $8 billion under custody including $6 billion in Australia.

For example, under an SMA, through their advisers, investors can choose from a wide range of model portfolios offered by managers whom Praemium selects through a rigorous research process. Within these model portfolios, investment managers can switch investments on behalf of investors and portfolios can be rebalanced automatically, while transaction costs are minimised through the process of netting, whereby multiple clients’ buy and sell orders are offset against each other.

Under an IMA, advisers and SMSF trustees can also select individual ASX listed and international securities to include in their managed account portfolio and with VMAs and UMAs they can also hold and report on illiquid assets such as property and collectibles through the platform

With its global expertise in retirement solutions, Praemium is also working on solutions for Expatriate investors who currently have their retirement pensions invested overseas and wish to gain more control over their nest eggs.

“Investors want more transparency, more control and more personalisation of the portfolio from the tax perspective.”

Martin Morris, Praemium