SMSF experiences: Hoping to learn from you!

[curiousgeorge]

Hi Guys,

I was wondering if people would be able to share their experiences with me? In particular i'm interested to find out why most people moved to a SMSF as opposed to using the standard structures available.

For example, i'm concerned about the
1. high level of fee's in the industry.
2. poor performance of the investments made on my behalf.
3. poor transparency on the investment options out there.
4. lack of control over my investments.

Do you share the same thoughts, or was your decision motivated by something else? More flexability etc?

Additionally, do you guys use direct equity's, etf's for fund managers in your superfunds? and why specifically do you do that?

If you do use outsourced providers of investments, what stuff in particular to you absolutely insist on having delivered to you to make your life easy when it comes to tax time? (particularly if using stuff like ETF's).

I'm not asking for advice from anyone, so don't worry! ;-) Just interested to understand your experience and motivations to help form a view for myself.

Thanks,

CG

 

[sydboy007]

I set up my SMSF late last year as i wanted a lot more control over my investments. I couldn't understand why the cash option is most super funds provided such pathetic levels of interest.

I'm using esuperfund and set up a corporate trustee as I'm a single trustee. That way I don't have to worry about all the boring compliance stuff that is super important to maintain the tax advantages of the SMSF.

Found the process pretty easy - used ecompanies to set up the corporate trustee.

After the gut wrenching 40% loss of the GFC I'm a bit more conservative than I used to be. No more all in for me.

Currently I have:

34% in an 2025 envestra ILB offering me 3.4% + CPI each qtr (it's increased in value by around 3% since buying)

22% in hybrids - 2 of the 3 purchases are in LICs (for a better term) where 1 has targeted corporate bonds and the other mostly hybrids, and I took a punt on the multiplex sites as they were offering 8.1% yield (they continued to pay quarterly thru the GFC so have a reasonable confidence they should be OK in the future)

43% is in shares I've bought mainly for their high yield.

If things go according to plan I'm hoping to have an avg yield of around 7% net tax and franking credits. Take out the envestra ILB and the rest is going to provide around 8.5%.

I'm happy with the diversity of income streams and very happy with the capital growth so far. Don't see the capital growth continuing like it has though, but the hunt for yield is on and 7 to 8% yield with franking credits is still a pretty good deal when 5 year TDs are < 5% these days and over that period I'd say you'd barely break even after tax and inflation cruel your return.

I have used ETFs - ishares - to buy a diverse range of high yield shares (IHD) and international shares (IOO). I'd say ETFs are great if you don't have a large balance (but if you don't have at least 100K then you prob shouldn't be thinking about running an SMSF) and provide cheaper international access than managed funds (and are easier to buy and sell).

What I like most about an SMSF is I know where the money comes from and where it's going. It's also nice to be able to earn a reasonable return on cash.

I thoroughly recommend FIIG securities to help you with any debt securities - they do fixed interest, floating rate, inflation linked / adjusted bonds and term deposits. One of the few times I've been to a financially based seminar and actually found the staff to be knowledgeable and helpful. Certainly not sales people.

 

[RandR]

I set up my SMSF late last year as i wanted a lot more control over my investments. I couldn't understand why the cash option is most super funds provided such pathetic levels of interest.

Think about the size of most super funds sydboy, the one I am in is 40billion.

They cant just walk down to the local branch and open a term deposit ... nor can they log into Ubank and open a high interest account.

With that sort of money for 'cash' they typically are investing in short term Bank Bills. Which is why the cash option interest is lower then what you can get out of investing it yourself.

Understand?

 

[Bill M]

I couldn't understand why the cash option is most super funds provided such pathetic levels of interest.

So what are your available cash options now? What can you get right now? I get 5.1% with MEBank outside of super, are you getting near that?

I am aware of hybrids and bonds, I am asking for cash only that has the government 250K guarantee attached, thanks for your reply in advance.

 

[sydboy007]

Think about the size of most super funds sydboy, the one I am in is 40billion.

They cant just walk down to the local branch and open a term deposit ... nor can they log into Ubank and open a high interest account.

With that sort of money for 'cash' they typically are investing in short term Bank Bills. Which is why the cash option interest is lower then what you can get out of investing it yourself.

Understand?

I understand the reasons why most super funds are not able to provide a decent return on cash. I've decided to give myself the opportunity to get a greater return on any surplus funds I have. Part of me thinks the super industry is being lazy (clip the ticket and on you go so to speak) and they should try a little innovation to provide a better return on cash.

So what are your available cash options now? What can you get right now? I get 5.1% with MEBank outside of super, are you getting near that?

I am aware of hybrids and bonds, I am asking for cash only that has the government 250K guarantee attached, thanks for your reply in advance.

I had been using ubank to hold my cash after I'd done my rollover. Currently I'm pretty much fully invested now - just $1200 in cash at present.

I'm 25 years away from retirement so a bit of volatility isn't of concern to me. If cash was still offer 6.5%+ I'd prob take that over hybrids or high yielding shares. 5% for cash now is prob OK in the current climate, but I can get 50%+ better yield in listed debt securities, which I'll take as adequate reward for the increase in risk.

 

[SMSFguy]

If you are just starting off then the e-super fund chaps are pretty good.
They have them free set ups etc. Like most members that use them its using their preferred brokering and bank accountants.

If you are chasing something more out of the box you could visit your Accountant. But be cautious some accountants charge like $2,500 just to set up a smsf, where it only costs like $137 for the trust deed (so the margin is huge). (and they are starting to charge for email/phone calls and meetings)

If possible go on a fixed fee basis, the reason is if you go on a hourly basis they could well be photo-copying and do more admin-related tasks and charging like a $150 p/h on a 6 min interval basis. So like on another thread fees can blow out to $3K+ quickly.

If you need any specific pointers feel free to pm me. I feel like a magician unveiling the secret of magic tricks here.

 

[Andrew Newman]

Hi Guys,

I was wondering if people would be able to share their experiences with me? In particular i'm interested to find out why most people moved to a SMSF as opposed to using the standard structures available.

For example, i'm concerned about the
1. high level of fee's in the industry.
2. poor performance of the investments made on my behalf.
3. poor transparency on the investment options out there.
4. lack of control over my investments.

I recommend most of my clients set up a SMSF to improve performance and for greater transparency as you have detailed but also to save on ongoing fees. I have provided a link to my website which has a case study to show the potential fee savings. Self Managed Superannuation Fund Benefits

 

[curiousgeorge]

Sydboy

Sorry for the delay in response! thank you, thats very helpful.

ETF's seem great, but from what I see they are quite expensive for what they are. Index products effectively that charge both the buy/sell spread and mgt fees; particularly for the work that goes into them.

I'll definitely check out FIIG, they look very interesting.

 

[curiousgeorge]

Thanks andrew.

when you say improve performance, are you referring to the gross or net number. I don't know much about the debt markets but i know that the majority of fund managers (in equities) don't outperform the index (before fees).. If the "professionals" can't then how are we supposed to ? or are you advocating that clients focus on fee reduction to improve performance?

Thank you for your website, i'll definitely check it out!

 

[Andrew Newman]

Thanks andrew.

when you say improve performance, are you referring to the gross or net number. I don't know much about the debt markets but i know that the majority of fund managers (in equities) don't outperform the index (before fees).. If the "professionals" can't then how are we supposed to ? or are you advocating that clients focus on fee reduction to improve performance?

Thank you for your website, i'll definitely check it out!

By improve performance, eliminate the fund manager fees and then buy shares which have the potential to outperform the All Ordinaries Index over the long term.

As for active fund managers or the so called professionals, I have many statistics that show they underperform.

 

[sydboy007]

Thanks andrew.

when you say improve performance, are you referring to the gross or net number. I don't know much about the debt markets but i know that the majority of fund managers (in equities) don't outperform the index (before fees).. If the "professionals" can't then how are we supposed to ? or are you advocating that clients focus on fee reduction to improve performance?

Thank you for your website, i'll definitely check it out!

Depends what you mean by expensive. Most have a MER of 0.7% to 0.1% depending on how actively they're managed.

To me they are a cheap for of diversification, especially when you want to invest overseas.

They are far cheaper than an equivalent managed fund, and far easier to turn into cash, though you may not be happy with the price you can get on the ASX, at least no one can stop you from selling, unlike a managed fund that can stop redemptions any time they like.

 

[Judd]

As well, make sure you "learn" from the tax office. A snippet from an article in the AFR a few days ago.

Self-managed superannuation funds have been put on notice that realising capital gains by selling assets soon after setting up a pension could be regarded as tax avoidance. Under rules introduced by former treasurer Peter Costello, savers over the age of 60 who establish a pension are exempt from paying capital gains or earnings tax on their investments.

The Australian Taxation Office reiterated a warning that it takes a dim view of superannuants who sell assets “shortly” after moving their super into the pension phase, and so pay no capital gains tax. It does not define “shortly”. The vigilance is part of a general crackdown on the $500 billion self-managed sector by the Tax Office.

The ATO noted that the sole purpose of operating a super fund was to provide income in retirement. “If an asset is purported to be segregated [put into a pension] shortly before disposal, and then disposed of in circumstances where a capital gain is . . . exempt income, it will be a question of fact having regard to all the circumstances as to whether it was invested . . . for the sole purpose of enabling the fund to [provide] superannuation income stream benefits and to whether the anti-avoidance provisions would apply,” the Tax Office said in a document published last week. “If a transaction is done shortly after moving into the pension phase, it is likely to attract the attention of the ATO, particularly when a large capital gain is realised,” said Peter Burgess, head of policy and technical advice at wealth manager AMP. “You need to be able to show it is a genuine situation and you are not moving into the pension phase to avoid capital gains tax.”

 

[sydboy007]

So far esuperfund has been pretty easy to deal with.

Received my check list on July 21.

Basically they have all the electronic data from the ANZ account all funds pass through, as well as the trading account with ebroking and an ING Direct account.

Took me maybe 30 minutes to assign the correct type to each transaction - a lot were already prepopulated and the system would let you assign the same code for all fruther similar transaction so not too painful a process. Might get tricky if you were doing lots of trades though.

I also had to upload a few documents as I'd bought a bond via FIIG securities, but since already had PDF files for them that wasn't difficult either.

Just got to pay my $44 ASIC fee shortly.

All in all it's been a pretty straight forward process. Here's to hoping I can beat the super funds again this year

 

[Dona Ferentes]

I'm not sure the DIY aspect of operating a SMSF works for everyone. This tale of woe will probably cripple the financial future of the participants for quite a while:

Question: My wife and I started a SMSF in February last year with $58,000 in employer contributions that we rolled over from our industry super fund. I purchased cryptocurrencies with about $30,000 of this and withdrew the rest of the funds as a COVID-19 early access withdrawal for personal use when I was probably not entitled to do so.

All the money in crypto is lost and there is no money in the fund. We are stressed and worried that what we have done will see us go to jail. We have two young kids and my wife is pregnant. Can you advise what we can do?

 

[Belli]

I'm not sure the DIY aspect of operating a SMSF works for everyone. This tale of woe will probably cripple the financial future of the participants for quite a while:

Question: My wife and I started a SMSF in February last year with $58,000 in employer contributions that we rolled over from our industry super fund. I purchased cryptocurrencies with about $30,000 of this and withdrew the rest of the funds as a COVID-19 early access withdrawal for personal use when I was probably not entitled to do so.
All the money in crypto is lost and there is no money in the fund. We are stressed and worried that what we have done will see us go to jail. We have two young kids and my wife is pregnant. Can you advise what we can do?

Assuming you, and your wife if also a Trustee, as recommended by the ATO, read the Trustee declaration carefully and understood the responsibilities. If you didn't understand them, which appears to be the case, you shouldn't have signed the declaration and had better start digging a bloody deep hole in which to hide.

Also if penalty units are imposed, such as not meeting operating standards which attracts 20 units, as each penalty unit is presently $275 it could add up to more than $58k as the penalty can apply for each and every breach. Then there is 60 penalty units regarding the duty to notify of adverse events so that's $16.5k in one hit. Hope they were Corporate otherwise is on each Trustee.

Zero sympathy. Fed up with clowns who view SMSFs as nothing more than a play thing.

 

[sptrawler]

@Belli I would love to read their investment strategy.

 

[Dona Ferentes]

close, and they sound cherooted. John Wasliev replied;
.
A: The COVID-19 early release superannuation scheme resulted in many people withdrawing amounts from their super who are now keen to replenish those accounts.
It may have helped if you had accessed this entitlement correctly, say lawyers Cassandra Hurley and Daniel Butler, of DBA Lawyers in Melbourne. Given you did not obtain the COVID-19 release in the proper manner, you do not fit within the usual process of recontributing the amounts you withdrew.
Where the proper form and process was followed, they say, the COVID-19 early release amounts can be recontributed before June 30, 2030, and not be included in the usual non-concessional contribution cap rules.
In any event, as part of a strategy to rectify your serious situation, say Hurley and Butler, you should offer the Australian Taxation Office – which regulates SMSFs – your willingness to recontribute the money you withdrew together with any investment income this might have earned.

As far as your question is concerned, this can be divided into two parts: how to properly deal with an investment failure; and an illegal early release from super.
Regarding your investment failure, say Hurley and Butler, trustees of self-managed super funds have a duty to act in the best financial interest of their members and to formulate an appropriate investment strategy that considers various factors including cash flow, risk and diversification. This can be found in section 52B of the Superannuation Industry (Supervision) Act 1993.
What is important with investments is that they are not prohibited and are included in the fund’s written investment strategy.
Indeed, just because an investment fails to make money, or loses money, does not mean that the trustee has breached his or her duty to the members or acted contrary to superannuation law requirements.
Further, where a trustee invests in accordance with a fund’s investment strategy, he or she has a defence against a claim for any losses that may be suffered.
This means that an SMSF investing in cryptocurrencies has not necessarily contravened the super rules in the SIS Act, say Hurley and Butler.

But it is important to check that the fund’s trust deed – which sets out the rules for how an SMSF should operate – expressly authorised crypto investments, as without express power in the deed this could give rise to added risk.

You should also make sure you have sufficient and appropriate evidence to show the SMSF investments were made in the fund trustee’s name and not just your personal name. Hurley and Butler say this is an issue that the SMSF auditor will want to check, as not having the investments and records in the correct name exposes you to another contravention.

The ATO, they say, has released specific crypto resources for interested trustees, and it is recommended you review this as it may assist you to prepare your fund’s submission to the ATO.

As far as dealing with the illegal early release of super, Hurley and Butler say people who withdraw money from their super before they are legally entitled to can face serious consequences.

Unlike with the COVID-19 exception, simply recontributing the money taken from the fund will not rectify the situation, and it is likely to be treated as a new contribution unless this is handled appropriately.

It is recommended you seek expert SMSF advice because the consequences can include:

• Becoming a “disqualified person”, which means never being able to be a director or trustee of an SMSF.
• Paying administrative penalties (potentially $13,200 per individual trustee) for each early accessed amount; and
• Paying income tax as an individual on any money withdrawn and further tax penalties, together with interest to the ATO for late payment.

Given your situation, Butler recommends a voluntary disclosure be lodged with the ATO. But before this, your fund’s accounts and tax returns will need to be brought up to date and lodged with the ATO, together with a plan that proposes how you will correct any contraventions.

Regarding the recommendation that you obtain advice from an SMSF expert, Butler says they are most likely to advise you to: wind up the SMSF; offer to recontribute the amount withdrawn together with interest to a suitable large super fund and the lost earnings; and to undertake to promise the ATO that you (and your wife if she was also a trustee/member) will never again become a trustee/member of an SMSF.

You and your wife should also undertake an education course on the superannuation rules and promise the ATO you will obtain professional advice in the future before undertaking these types of transactions.

Taking timely and appropriate action now, says Butler, and doing so with the assistance of an SMSF expert, should assist with minimising any adverse consequences that may follow, as well as hopefully greatly ease your stress.

When dealing with situations such as yours, he says, the courts have repeatedly stated that super should not be regarded as a “bank of last resort” and the super rules must be obeyed and respected.

 

[Belli]

@Belli I would love to read their investment strategy.

I'll leave that pleasure to your good self. Over the years I've had sufficient joy (?) dealing with a number who have screwed things up only to then front up expecting an easy fix for the mess they have created. It was your decision, so you own it wholly and solely.

I think an argument can be mounted that sometimes choice isn't a good thing.

 

[divs4ever]

Which shares and funds do SMSFs invest in?​

Which shares and funds do SMSFs invest in?

SMSFs offer unlimited investment flexibility and most trustees make their own decisions but the majority of investments fall into five categories. There remains a strong home bias despite global opportunities.

www.firstlinks.com.au

this is probably in the wrong thread

please move it , if there is a more appropriate thread