Future of self managed super funds (SMSFs) is interesting, there is talk of removing borrowing due to fuelled up property market, refunding of non-concessional contributions, ability to transfer residential property if investment is your business, new penalty regime and accountant licensing and attempts by public offer funds of handing investment decisions to members.
Among all this are younger trustees, giant administrators like AMP cross selling their products and services, accountants, auditors and new breed of SMSF accounting and auditing tools and plenty more.
Below is our analysis of the market place on how the game will look like in year 2015 and beyond.
Future of SMSF Auditors - as we see it
What we are observing is that our active users on www.onlinesmsfaudit.com.au, about 650 odd auditors, are the first early adaptors of new technology and once few other auditors move online, there would be an avalanche of auditors who would move and we will watch with awe how all this happened.
Auditors will, one day in the future, wonder how they audited with paper & pen which took them double the time as compared to online smart systems. Just like internet banking, mobile phones and emails, auditor's life would be very difficult without some online auditing tools.
We expect that the ATO / ASIC will ensure that all auditors auditing a small number of funds at a low price will one day be removed from the system. The regulators are already concerned about their skills in identifying breaches and finding fraud in their audits and are vocal about it. Once these small operators are out, audit fees will grow and SMSF audit will be a new profession.
This new demand will bring in a new breed of intelligent / knowledgeable professional SMSF auditors, who will have the mammoth task to audit about 800,000 funds by 2020. This new breed of specialist SMSF auditors' numbers will be around 5000, which means that each SMSF auditor should sign off about 160 funds. That number will not be uniform as there are currently many audit firms who are auditing well over 1,000 funds. These firms, one day, will climb to audit between 2,000 - 5000 funds.
What we are also noticing is that currently there are many audit firms who are auditing about 500 funds and are adding more funds at a very rapid speed after moving to our online audit platform, as it saves them time to complete each audit with spare time for marketing activities.
Click here to see how online smsf audit tool works
For other traditional auditors to be able to conduct a top quality audit for a large number of funds in their portfolio, at a decent human time cost is challenging, and those who have adopted technology are enjoying speed, accuracy and reliability. 
If traditional SMSF auditors do not adopt these new online auditing tools, in our opinion, it will be very difficult for them to conduct audits of more than their share of 160 funds, as most of audit work comes in between February to mid May, a window of about 80 working days.
Traditional auditors may miss out on the growth of SMSF sector and will bleed when they see others succeed. Hence, if you are an ASIC approved auditor and want to grow your auditing business, going online is the only way or you will perish.
We expect many new specialist audit firms emerging. Some will be new firms, set up by specialist SMSF accountants branching out from their SMSF accounting roles and others will be an extension of existing accounting firm catapulting with their special knowledge and advanced online auditing techniques.
We also see growth in firms where the one audit partner of an accounting firm, currently auditing only the firms accounting clients (provided he and his staff are sitting on the other side of the Chinese walls) offering their SMSF audit services to other accounting firms. These specialist audit cells, within a firm, will see growth opportunities in a niche market place and will set up specialist audit departments in their firm, to cater to the growing demand, as audit fees improves on demise of cheap auditors who will exit due regulator's scrutiny.
Once one man band SMSF auditors are out of the system and audit firms take over, there will be no other method to audit, but online.
State of the Current SMSF Software Game
With our combined experience of 60 years in SMSF space, we have noticed that accounting firms which look after say from 20 to say 500 funds have mostly issues related to their lodgement program. Accounting firms which will reach 500 odd funds, will have some sophisticated practice manager software or become or think of becoming an SMSF administrator instead of "year-end" accountants.
As a bird's eye overview of the current SMSF software game, our analysis and estimates of the current market place of total 550,000 funds is that accountants using online data feed softwares such as Class super is used for about 50,000 funds and Supermate and BGL 360 is used together may be another for 50,000 funds. In our opinion, these numbers will stay constant at about 20% of all funds, as this number of funds needs daily data feeds.
The other 450,000 funds are being looked after by other softwares such as BGL desktop, Handisuper and many other non-specialist SMSF softwares. These 450,000 funds are "end of the year funds" where the trustee is the mail house of all SMSF data who hands over the funds data to their accountant after the end of the financial year.
However, there could be many bank download or bank link arrangements in-between, where the accountant may have access to download bank statements of their client's funds and or broker data, but the accountant predominantly relies on trustees to hand over the data after the financial year ends.
Many funds do not need daily data feeds because of several reasons. One of the reasons is very interesting and relatively new to the SMSF game, it is the advent of new funds being created only to purchase property.
What we have noticed where there are older trustees, commercial properties are purchased with related parties as tenants and where there are younger members in a fund, a residential property is purchased with real estate agent involved as the managing agent.
Unfortunately property management software are not yet developed for daily data feeds, which means accountants will have no choice but to wait till the year ends and collect data from trustees for preparing or finalizing financial statement for the fund.
Daily feeds are required if the number of transaction in the fund is large and it is easier for the accountant to put financial statements tougher or if the trustees want to know their current status on a daily basis. If more SMSF's have property the number of transactions will be low and the trustee will usually know how much is in their SMSF and will not need daily-feed software.
If SMSF investments are not in the equities market, daily feed software does not speed up accounting work. This means all accounting firms, which need daily feeds for their client's SMSF's has already got it and in our opinion, it is very unlikely that daily feeds software will be used for all the funds in the accountants portfolio.
Moreover, its common sense, a desktop version which costs say about $5 a fund with 4 - 5 hours of labour @ $30 per hour, an accountant can complete funds financials at a cost of $150 or lower if bank statements are available in a csv file. Compare that to data feed version of software for $170 plus 2 or 3 hours of labour and the headache of chasing trustees for permissions for data feed. It's a no-brainer.
In our opinion administrator use daily feed software because the fund is referred to them by a financial planner and permissions for data feed are already in place and generally employ low level staff to process data as the responsibility of strategies rests with the financial planner and not them.
In the future, in our opinion, newer and cheaper (we are building one for $30 a fund) some even free daily feed software will enter the market place and there will be a price war. In our opinion, the owners of Class super software know that and want to come with an IPO as quickly as possible as the business in the future will not grow but in fact reduce. It's common sense, nobody sells a growing business, because you get more for it later.
Number of SMSF's with property in year 2020
In our opinion shelf SMSF deed providers are in a better position than ATO in estimating future number of SMSF's and in estimating how many of these new funds will have property in them. ATO has to wait for one year for the fund to lodge their annual return, after the fund has been created to collate similar data.
By observing the sales of new SMSF's deeds and bare trust deeds (when the fund borrows), we expect about 600,000 funds and about 100,000 funds to have property in them by 30th June 2015. This means about 50,000 new funds will be created in the current financial year and every 3rd fund created will be only to purchase property.
Licensing of Accountants for SMSF
SMSF structure is most commonly used by business owners or high income earners with assets besides their own home. And these families have a special relationship with their accountant.
Hence, in our opinion, it does not matter what regulators may bring in as new legislation surrounding advice on set up and managing SMSFs, accountants will continue to set them up in future and provide holistic advice to their client. That is probably why not many accountants are bothered to get a financial services licence even if the last date is to get one (1st July 2016) gets closer.
Due to this special bond between trustee and his accountant, managing funds will mostly remain with accountants rather than SMSF administrators and this market will remain fragmented.
As accounting firm grows in SMSF sector, there will be pressures to move towards daily data feeds.
The fact is that after an accounting firm reaches a certain number funds under management, it is more about pushing the income tax returns out of the door instead of providing SMSF strategic advice. And any trustees with a decent balance in their SMSF's generally not chase bean counters, but will hunt for trustworthy advisor.
Hence, in our opinion, SMSFs will always remain a very segregated, fragmented and decentralized market.
Future of SMSF Administration Game
AMP may have purchased a few SMSF administrators who specialize in daily administration of funds and may have the largest number of financial planners referring them accounting work. Their numbers could be large but is still remain only between 2% or 3% of all funds.
If you include another top 20 administrators in Australia, add another 7% to 8% of funds. Say 10% of total 550,000 or say 55,000 are currently under professional administration. In our opinion, bulk of SMSF management is with about 11,000 accounting firms, spread all over Australia.
SMSF administrators use daily feeds softwares. If you add another 50,000 funds which use daily feeds, managed by accountants, you will come up to the 100,000 number of funds using daily feeds software as discussed above.
Investment mix of SMSF in future
The future of SMSF's investment mix is also predictable; it is moving away from the equities market and moving towards property as more public offer funds offer equity investment choice to their members to stop leakages of funds to SMSF sector.
If "control" is the only reason to set up a SMSF, public offer funds are happy and willing to hand it over to the member. If a super member wants to invest only in shares or cash, public offer funds will be the place to be, unless the family super balance is a sizeable amount.
The time to exit a public offer fund is when the fees charged by a public offer fund becomes higher compared to the cost of running a SMSF. For example, if the average MER of a public offer fund is 1.5% and if it costs about $2,000 to run a SMSF, then about $133,333 is required by a family of 4 to move into a SMSF situation.
The only other reason could be to purchase property in super, with or without borrowing. Property is one investment which public offer funds may have difficulty in offering to their members at least at 1.5% MER.
We predict property on half the SMSF balance sheets by the year 2020. That is 800,000 SMSF's and 1,000,000 properties in them as many funds will have more than two properties.
