How to run a SMSF without a wrap account
One of the reasons why many advisers have traditionally favoured WRAP accounts for their SMSF clients is for the back-office administration efficiency that this achieves in their business.
When it comes to ease of transacting and online reporting, a WRAP account provides the adviser with an easy solution. However, as many advisers grow the SMSF part of their business, they realise that the typical SMSF client often has a different mindset and differing objectives to a typical non-SMSF clients. Below I’ll explain how to run a SMSF without a wrap account.
Why SMSF clients are different
While SMSF clients are still looking for the same outcomes in terms of ease-of-transacting, product choice and online reporting, they tend to favour direct investment in cash, shares and property. As a result, many view WRAP accounts as incurring an additional (and in their minds a somewhat unnecessary) layer of fees.
While this may not be true in all cases, perception is often viewed as the reality. In order therefore, to cater for this group of clients, it is important to provide SMSF clients with greater choice and flexibility. So what choices do advisers have when attempting to attract larger numbers of SMSF clients while still maintaining good back-office efficiency?
Ignoring direct property purchases in a SMSF, the other assets most often traded by trustees are direct shares and cash. Therefore, in dealing with SMSF trustees, it is imperative that data feeds are in place for the relevant trading platforms and bank accounts. Otherwise, not only will it make the adviser’s life difficult, but it will also make the fund administrator’s life much more difficult and add to the overall cost of administration.
Ironically, term deposits are one of the biggest culprits when it comes to poor or non-existent data feeds, and therefore not surprisingly very unpopular with fund administrators. Fortunately, there are ways to avoid this problem, and in our business, we use Australian Money Market which is essentially a wholesale term deposit facility that provides excellent data feeds to overcome this issue. We also have first-hand knowledge of other nil-cost platforms that are being developed in this space.
How to maintain efficiency
In an effort to drive efficiency, lower costs, and provide advisers with accurate and up-to-date data, a cloud-based software solution like Class Super, coupled with an administrator that understands the nature of an advice business, goes a long way to providing an excellent SMSF solution.
However, the one missing ingredient in the portfolio mix to this point has been the efficient use of managed funds for those advisers that want to gain some exposure to listed property, fixed income, international or alternative assets. The ASX mFunds offering goes some way to addressing this issue, but at Superfund Wholesale, we have been actively working with groups like Open Markets (via their MATH Platform) to provide a wholesale managed fund solution that will cater for direct equities and managed funds on the same trading platform.
This coupled with a good cash facility will be able to deliver an advice business with an effective alternative to the traditional wrap model. This is particularly relevant for those self-directed clients who need advice on broadening their asset allocation or otherwise risk an over-concentration on Australian equities.