#ClassConnect18 Summary

Earlier this week 300+ SMSF specialist advisers and accountants attended the 2018 Class Connect (ClassCon?) conference in Sydney.

The following is my review and insights from the event including key themes.

#1 - The SMSF space is starting to grow up

A key theme throughout ClassCon was that SMSFs are finally starting to crawl out of the primordial ooze of being a cottage industry. This is apparent through a number of key insights:

• 600,000 + SMSFs
• 1 million + members
• $700 billion + in assets
• SMSFs control approx. 30% of the $2.3 trillion in superannuation assets
• Growth in new SMSFs is slowing but still solid (maturing)
• Increased regulation
• Increased investment by service providers

Kevin Bungard, Class CEO, mentioned that although some consolidation of service providers is occurring, it's still very fragmented with the vast majority of SMSFs being looked after by generalist accountants with a small number of SMSFs on their books.

This is supported by figures from the ATO - which lag by 2 years due to availability of data:

• 65% of tax agents lodge fewer than 20 SMSFs annually
• 93% of tax agents lodge fewer than 100 SMSFs annually

#2 - Annual SMSF compliance no longer an option

Events-based reporting was a major theme across ClassCon. There were some great presentations around strategies and technical (Meg Heffron + Melanie Dunn thank you!) as well as practical insights from the Class team on how to actually get events-based reporting done efficiently.

Come 28 October 2018 SMSFs where any member had a total super balance above $1m (as at 30/06/2017) are required to report any events (pension commutations + commencements etc) for the previous financial quarter.

In the case of 28/10/2018, it will also include any reportable events that occurred during the 2018 financial year. Estimates on the number of SMSFs impacted varies - but even if it only effects 1 in 10 SMSFs it is still very significant and most accountants are unprepared - even those using Class.

Aaron Dunn's presentation on the insights from his Future of SMSF Survey indicated that 39.3% of accountants still only touch their SMSF clients annually and 28.5% re-actively report on an ad-hoc basis. Less than 30% report at least quarterly (or more regularly).

It's also worth noting that the respondents to this survey are active in the SMSF space - they are more likely to have a larger number of funds as well as some specialist education or experience in the SMSF space. If generalist accountants were included the portion of SMSF work still be done annually would be significantly higher.

I believe 28 October 2018 will be TBARmageddon. A significant portion of SMSFs - including those that will have quarterly events-based reporting obligations - are administered by accountants that only touch the funds either annually or on an ad-hoc basic. These businesses and their SMSF clients will feel the pain of TBAR over the next 12 months as they begin to realise they're not meeting their requirements and their clients begin to be fined for late lodgement.

To learn more about how Intello is handling TBAR and events-based reporting please click here

#3 - Integrations: So hot right now (especially for financial advisers)

During ClassCon it was announced that Class has integrated with major financial planning tools Midwinter as well as Xplan.

The Class integration into Xplan's Iress Portfolio System (currently beta testing with select users including Intello) is very powerful and will enable advisers to combine the administration and portfolio ledger of Class with the reporting and advice tools within Xplan.

Class now has active integrations with the following financial planning tools:

• Iress Xplan
• Midwinter AdviceOS
• AdviserLogic
• MyProsperity
• Plenty Plus
• Ignition Wealth
• Financial Simplicity Nudge
• MA Operator (By WealthO2)
• Intello Adviser Portal

These integrations are potentially great for financial advisers, however a word of caution: Their usefulness is entirely dependent on the quality of data they pull from Class. Although Class should be considered the Ferrari of the SMSF admin software world, it's useless unless it has a competent driver.

Advisers need to partner with an SMSF administration provide that not only uses Class, but that has the capabilities to provide clean up to date data day in day out. This is why Intello exists. Click here to learn more or contact us.

In addition Class also made it very clear that from a future development perspective, integrations are key and that accountants will be looked after via improved integrations into practice management software including MYOB, Xero HQ and possibly even APS.

More and more businesses are leveraging the power and open architecture of Class and this is a win for all types of users and their clients.

It's also interesting tracking the market share of the major SMSF software providers. As the above modelling by Investment Trends shows, Class has the largest number of SMSFs in the cloud, with BGL not far behind (27% versus 24% estimated).

BGL has also been successful holding it's market share while converting existing desktop users to it's cloud product, but will find this increasingly difficult because those businesses still on desktop solutions are laggards with smaller number of funds per practice and not motivated to move.

#4 - Change or Die

There were a couple of notable presentations at ClassCon that addressed this theme - but from slightly different angles.

Michael Blomfield from Investment Trends spoke about the following highlights from their annual survey of 871 accountants and more than 2,000 SMSF trustees:

• Accountants on average generate 25% of their fees from SMSF clients, however they continue to believe they will be able to 30% or more - but it never happens (recurring theme over 5 years).
• Accountants highlight that their biggest challenge when it comes to SMSFs is that they are losing market share to specialist online and lower cost SMSF administrators (esuperfund was specifically mentioned).
• Although accountants as a professional are more trusted compared to financial advisers and banks, they are not leveraging this trust to expand their SMSF revenue.
• Regulatory uncertainty and licensing issues are still flagged as major issues - however Michael thought that these are convenient scapegoats and that certain businesses are growing strongly in the face of those market factors.
• SMSF trustees don't really care about the underlying software systems an adviser or accountant uses - they want the good outcomes (up to date information and online reporting etc.)

Aaron Dunn from SmarterSMSF spoke about the initial results from his 2018 Future of SMSF Survey which covered 488 businesses active in the SMSF space. The following are the highlights:

• Accountants and other SMSF professionals are buoyant about the opportunities within the SMSF sector.
• Larger, specialist businesses are growing almost 3x faster (193%) compared to the average SMSF practice.
• Accountants have had a boost in efficiency over the last 2-3 years thanks entirely to implementing cloud software solutions like Class, however they haven't undertaken any strategic planning and are still effectively running their businesses the same way they were 5 or 10 years ago.
• 67% of accountants are still using time-cost billing
• 65% of accountants are still only billing annually
• Most accountants are still only touching SMSF clients annually and are not prepared for TBAR / events-based reporting.
• Fragmentation still very evident with the median survey participant looking after only 70 funds

The Future of SMSF Final Report is due to be released in October 2018 and will be essential reading for any business active in the SMSF space.

Summary

A lot of the noise in the SMSF and financial services space more broadly is just that: noise. Businesses need to innovate and continually reinvent (or disrupt) themselves to stay relevant.

Accountants in the SMSF space are especially vulnerable and feeling the squeeze from many areas - namely larger SMSF specialist businesses who beat them on price and capabilities, as well as financial advisers who can bypass accountants entirely by partnering with those specialist administrators.