The 2020 Vanguard/Investment Trends SMSF investor report found that 32% of Australia’s 600,000 SMSFs seek the assistance of a Financial Adviser, yet more than 50% of SMSF trustees report having unmet advice needs in relation to their SMSF.  

If you are a trustee contemplating seeking advice, it’s worth considering the pros and cons of engaging an adviser.

Top five benefits of seeking financial advice

1.      Investment Strategy Development and Implementation

More than 75,000 of the SMSF trustees interviewed by Investment Trends in its 2020 survey said they needed their SMSF investment strategy reviewed.

ATO data supports this. The average SMSF has more than 25% of its capital in cash and is overweight Australian shares while lacking exposure to the key asset classes of bonds, international equities and global REITs.  The result is an inefficient portfolio that lacks diversification.

An adviser can lend some of their formal training and education to assist with building and investment strategy that:

·        Takes into account your preferences and then helps you to build a robust, rules-based investment strategy to help you prudently manage your portfolio.

• Finds the ‘Goldilocks’ asset allocation for your needs in terms of risk/return.
• Integrates your SMSF investments strategy into a broader, holistic plan that considers all of your wealth (not just the super).

Experienced, professional advisers will consider portfolio construction from both a ‘top down’ as well as a ‘bottom up’ perspective. They can use their deep understanding of Modern Portfolio Theory (MPT) to help you establish a robust investment strategy that can act as a ‘safe harbour’ and prevent you from falling into many common investment pitfalls.

2.     Integrating your SMSF with your broader strategic plan

If you are looking for assistance for more than your SMSF’s investment strategy, a financial adviser can help you work through your broader financial situation to ensure it is adequate to meet your future objectives. This may involve an exploration of the following:

• Where your SMSF fits in your broader financial situation
• How much will you need in retirement
• How much of this needs to be funded by your SMSF
• Whether you can move more of your wealth into the concessionally taxed environment within your SMSF
• How much investment risk you can afford to take, and how much do you need to take to meet your retirement objectives
• What your testamentary intentions are and how they fit with your SMSF

3.      Human Influence

An ongoing relationship with a financial adviser who understands your needs and objectives can be beneficial on a number of levels. A financial adviser can hold you to account and act as a sounding board for big decisions.

Moreover, if they’ve worked with you to develop your SMSF investment strategy they are well placed to ensure you stick to it through both the ups and the downs of the economic cycle when many of us fall victim to the common behavioural pitfalls. For example  in times of market sell offs and rebounds.

4.      Time Saving

The use of a financial adviser is an investment in freeing up time for yourself and dedicating resources to ensuring your portfolio is regularly rebalanced, monitored and its performance appropriately tracked.

Time is money as they say, and as you move through life and  your priorities change, you might prefer to outsource the time consuming task of managing your portfolio and dedicate your time to pursuits that are more important to you.

5.      Peace of Mind

Last but not least, the right financial adviser should provide you with peace of mind. This does not mean abdicating responsibility for the management of your SMSF. 

However, working with a financial advisor should ease some of the worry associated with managing what might be your largest pool of capital. Knowing your investments are being managed by someone with expertise and experience can provide a great source of comfort.

Three things to consider

1.      The Cost of Advice

When you seek unconflicted advice from a professional you should expect to pay for their skills and experience.  The majority of advisers will charge a fixed fee for the development and implementation of your advice strategy. They may also charge a fixed or percentage based fee for the management of your SMSF portfolio.

The costs of delivering compliant financial advice is typically linked to the time it takes to develop, implement and manage the clients financial affairs and will be influenced by the level of financial complexity and assets a financial adviser has responsibility for.

An adviser will provide you with a detailed summary of the fees associated with seeking advice as part of your initial engagement.

2.     The Adviser’s Business Model

Commissions for the sale of financial products were endemic in financial advice in the past. Recent changes to the Corporations Law have almost completely stamped out these practices.  It is however, always worth understanding whether an adviser’s business model involves you investing in managed funds owned by the advice practice or not. This will help you understand the true cost of advice and the potential business model of the advice practice.

3.      Relinquishing Responsibility

One of the biggest benefits of establishing and maintaining an SMSF is that it allows you the ability to control when, how and who you invest with. If you appoint a financial adviser to manage your portfolio you will likely relinquish some of this control. This may or may not be right for you and requires detailed consideration.

This list is by no means exhaustive. If you are thinking about reaching out for advice it is best to think first about what services you want. This will help you ask the right questions of prospective advisers before you engage them and hopefully lead to a mutually beneficial relationship.

Cathryn Gross

Partner & Principal Adviser       

Minchin Moore Private Wealth Advisers

Cathryn has  over 20 years’ experience in financial services and is an accredited Executive Coach.

In 2015, Cathryn established her own financial advice practice which she merged with Minchin Moore Private Wealth in 2019. She is now a Partner and key decision maker in that practice.

Before moving into financial advice, Cathryn worked in  corporate finance and institutional sales roles at a global investment bank and large trading bank. 

Cathryn has been a finalist in the AFA Rising Star Awards and sat on ASICs Financial Advisers Consultative Committee. In 2019 she was also named by Financial Standard as one of Australia’s top 50, most influential advisers.