SMSF members need to embrace fintech to minimise the erosion of returns and add simplicity to the costs of both asset ownership and administration.
Managed account software provider MA Operator says many SMSFs are paying for services they don’t need when it comes to the portfolio management of assets.
MA Operator says recent ATO data shows the average operating expense ratio for SMSFs increased to 1.06% for the year ending 30 June 2014. While the increase was largely due to new data collection on non-deductible expense items, the ratio of 1.06% is significant.
For an SMSF with the average fund balance of $1,066,080, average operating expenses would work out to be $11,300. MA Operator co-founder Shannon Bernasconi said the good news is many of these expenses can be reduced or avoided.
“The inefficiencies and additional cost layers imposed on SMSFs is frankly unnecessary and unacceptable. The double administration, unbundling of statements, and additional fees alone can result in significant expense without adding any real value,” she said.
Bernasconi added that by cutting product costs and duplicated administration, and providing the transparency of assets held legally and beneficially, SMSFs’ costs of both asset ownership and administration could be lowered substantially.
These additional services include an unnecessary layer of administration for SMSFs, Bernasconi said. This includes the ‘unbundling’ of wrap assets at tax time based on wrap providers’ reporting; and ongoing administration for assets where only beneficial ownership is provided.
From an adviser’s perspective, in the post-FOFA fee for service world the pressure is already there to demonstrate real value when servicing SMSF clients. Fintech presents an opportunity for advisers to provide SMSF and High Net Worth (HNW) clients with an alternative which can reduce or avoid these unnecessary fees and improve efficiency both for the client and the adviser.
She added new portfolio management technologies have come to market that offer independent financial advisers off-the-shelf solutions to automatically construct, rebalance, implement and report on SMSF and HNW portfolios. Data feeds from brokers and banks now allow for SMSFs assets to be mirrored on both the portfolio and the accounting software. These “best of breed” fintech operating models effectively remove the additional layers of costs and give legal ownership to the client, Bernasconi said.
“Advances in technology mean that independent intellect for asset selection no longer has to come with the costs of product and PDS manufacturing. Genuinely independent advisers can leverage investment committee expertise, have a fund manager offer a model portfolio of direct assets in their area of expertise, or apply individual asset selection,” she said.