How to build a profitable SMSF practice?

[ December 12, 2012 ]

The real beauty of an SMSF practice lies in bringing the SMSF administration and audit process under your roof, writes Terry McMaster

The first step in creating a fee-for-service financial planning practice is to provide the service. Don’t refer your clients off to competing institutions. Control the service provision function yourself.

Why give profit away? Why give goodwill away? SMSFs are a beautiful practice development opportunity. They are the perfect client-adviser integration tool, and they suit most clients if you understand them and the opportunities they create.

Clients want SMSFs. They want the control and security of their names on their investments, and knowing exactly where their money is all the time. Clients remember what happened to their superannuation balances in the GFC and they want to make sure it does not happen again. They want a conservative and safe way to invest their superannuation and to make sure it is there when needed in retirement.

SMSF suit most clients, from young couples just starting out to older, wealthier individuals with millions to invest.

Consider the strategy of a $100,000 SMSF 100 per cent invested in a CBA deposit. This has arguably the lowest risk of any superannuation strategy. Does it get any more conservative than a CBA deposit? The administration cost is well below 1 per cent, even 0.5 per cent, if the accountant is efficient: it takes less than two hours to prepare the accounts, tax returns and related documents for a SMSF invested in a bank deposit. The net return of about 3.5 per cent to 4 per cent beats the “capital stable” option for nearly every other superannuation alternative.

If you recommend a SMSF you have a client for the next 30 years, not just the next 30 days. This means you earn income for the next 30 years, not just the next 30 days, and your practice’s CGT free goodwill increases accordingly.

SMSFs create recurring annual business for financial planners. They are not one-off sales events. The financial planner advises on the set up of the fund, and the role it plays in the client’s on-going financial plans. Risk insurances are needed. As the SMSF grows and the investments diversify more regular and detailed investment advice is needed. The SMSFs are asset protected, and are an integral part of the long term retirement planning and estate planning processes.

The real beauty of an SMSF practice lies in bringing the SMSF administration and audit process under your roof. I know one financial planner who administers more than 200 SMSFs, at an average profit of $1,500 per SMSF per year. He charges each SMSF a fixed fee of $2,500 a year, and sub-contracts the accounting/audit/tax function at a fixed fee of $1,000 a year. That’s $300,000 extra net cash flow a year, and about $1,000,000 of CGT free goodwill.

What’s better, previously the 200 SMSFs had their own accountants, and each of them was competing with him for the advice work. Now his clients have a much better (ie lower price) service and he is the primary adviser, the person his clients trust with all aspects of their retirement planning and other financial planning needs.

He is the primary adviser. He provides the services, not some institution or other potential competitor, and he gets the fees and the associated goodwill. He has the personal satisfaction of being truly involved in his clients’ affairs and knowing he is providing excellent value and service.

This is what creating a real fee for service practice is all about.

The Dover Group