29 January 2013

The last six months has seen an extraordinary level of take-over activity in the Self Managed Super Fund (SMSF) administration space. With even the largest of SMSF administration firms holding less than two per cent of the overall market, the potential for consolidation has become an increasingly hot topic among industry insiders, and many have begun to believe that a large-scale wave of consolidation is now overdue.

In the current highly-fragmented market, the vast majority of SMSFs are still administered by small to medium accounting businesses that also provide a wide range of other services and often only look after a small number of self managed funds. As a result, these firms can have trouble finding and retaining staff with the specialised skills required to administer an SMSF. In addition, their processes are often highly manual and inefficient causing unnecessary errors and delays.

In an address given by ATO in September this year, Assistant Commissioner Stuart Forsyth revealed that 26 per cent of SMSF tax returns are not being lodged on time. This statistic suggests that a significant proportion of accountants are not only struggling to cope with the complex nature of the work involved in administering a fund, but that they have been unable to develop the necessary systems and processes to ensure that their funds’ annual compliance work is being completed on time.

Outsourcing potentially provides a ‘best of both worlds’ solution for an industry based heavily on personal relationships between suburban accountants and their clients. Outsourcing ensures the relationship between the accountant and their client is retained, while allowing the administrative work to be done professionally by a team of specialists.

However, from a technology point of view, the move towards consolidation and outsourcing begs such questions as; ‘What sort of software solutions will the large-scale SMSF administration firms of the future require?’, and ‘Will the products that are currently designed for small to medium sized firms be able to properly cater for the needs of an ‘industrialised’ sector?’.

A large administration firm needs to be able to take advantage of their size to achieve economies of scale so that they can operate more profitably and efficiently. For instance, they require a more ‘business-centric’ system that allows them to process common transactions in bulk across multiple funds rather than a traditional ‘fund-centric’ system that generally only allows users to work on one fund at a time.

A large scale operator also needs business-wide workflow and reporting tools that provide them with information about the progress of work across their entire client base. For a firm that may be responsible for tens of thousands of funds, the ability to quickly pinpoint blockages in the processing cycle is critical to ensuring that agreed service standards are maintained and that fund returns are being lodged on time.

In addition, an online communication portal is an important tool for maintaining efficiency and ensuring fund compliance. An administrator will often be presented with transactions that cannot be properly processed without further information from the client. Deferring the processing of these transactions to the end of the year not only reduces efficiency, but can also result in inadvertent breaches of contribution caps, pension draw down limits, and even lead to a breach of the terms of the Superannuation Industry Supervision Act (SISA).

Ongoing growth in the self managed super fund sector seems assured as more and more Australians look to take control of their retirement savings. However, legislative change and the ever increasing consumer demand for better service at a lower price is disrupting the traditional software model.

The development of a new and more powerful generation of SMSF administration software, tailored to the needs of large administrators, will allow the industry to provide a more comprehensive and timely service to members, at a lower cost. This technology driven shift will open up the benefits of self managed funds to a much larger proportion of Australians, driving increased member engagement across the industry and allowing more people to take personal control of their retirement savings.