Our SMSF

By Margaret Studley

Background and Administration

My husband and I have been running our own Super Fund for 28 years since it was set up in 1981 on the recommendation of our accountants who looked after the financial aspects involved and arranged for the Trust Deed to be drawn up by a solicitor with whom they had regular contact for such purposes.

Our accountants are part of a firm with whom members of the family have dealt with for four generations so they knew our situation very well, circumstances that I think would be quite rare today. We therefore had great confidence in them which helped. They also had confidence that we could, and should, manage this ourselves.  We already had a company structure set up and the company was made trustee of the Super Fund.  My husband and I are the members of the Fund and directors of the trustee company.

At the directions of the accountants we personally set up all the bank accounts and since inception have paid in all the contributions, paid out all the pensions, controlled the bank accounts and done all the day to day running of the fund, including keeping all the necessary records with regards to the bank accounts, share purchases and sales, and dividends, minutes of meetings, cash book details and diary entries when necessary.  We send all the relevant summaries and supporting documents to the accountant for inclusion in our tax returns. 

The accountants ensure that all necessary returns are completed and lodged when necessary and arrange for auditing of the fund as prescribed. The accountants have also seen to it that all TFN and ABN and other regulatory obligations have been met as and when necessary. I occasionally contact them to check whether there have been any regulatory changes we need to know about. These events are usually triggered by an article I have read in AIA or media somewhere, but I would always do it towards the end of the financial year, especially to check that we have paid the correct pension amounts.

The annual costs are approximately $3400 for accounting and auditing and about $400 for statutory levies and bank fees.

Investment Services

Our first contributions totalled about $3000 so asset allocation was not an immediate issue!  Over time we acquired some managed funds (mainly for overseas and property exposure), shares, fixed interest and cash. We have continued to manage our own fund with advice from the accountants as to financial matters as above.

In the late 1990’s we decided to sell the business and that was when we decided to seek advice from a financial planner. Initially we chose a well known and respected name in the field but decided not to proceed. (See comments below).  By the time our business was actually sold in 2000, our accountants had set up a financial planning section as part of their business. We decided to consult with their financial planning section because we felt they knew all our financial circumstances so well and could easily liaise with the taxation and personal accounts section.  At that stage we felt that they were the professionals and we did not know enough to proceed entirely without some advice as to how to structure our investments in retirement.

Excluding our home, their advice was to keep at least one third of our assets, outside the super fund. This was because of a concern that the ’powers that be’ might alter the rules dramatically in the future. Although this was not as tax advantageous it provided for more flexibility. We were not confident at that point that we would manage as well as professionals so thought we would put some into managed funds. They asked us to fill in a risk profile questionnaire to determine our respective attitudes to risk and what elements of investing we were comfortable with and which not.  Accordingly, they suggested placing one third of our super funds in managed funds under the umbrella of a master trust. This would give us access to overseas shares and property holdings all of which could be sold if and when we chose to do so.  They provided a very detailed and informative schedule for us at this time, pointing out the pros and cons of various actions.

Fixed interest investments had staggered redemption dates over one, two and three years. We did not have any directly held real estate investments within the fund because they were deemed by our advisers to be too illiquid for our purposes and fund size.  We have some property exposure through the managed funds and listed shares. 

We have virtually controlled our own destiny since and made our own decisions from then on but consulting them on such issues as to what effect would certain actions have on our situation at any given time. These queries I would classify as accounting matters rather than financial planning as such. The managed funds are not something we would go into again (see below) but we do have ultimate control in that we have been able to swap funds within the master trust and can sell funds at any time we choose. We are not lovers of fixed interest investments so they were redeemed as they became due.

Over time we have tried to keep up to date with happenings in accounting and legal fields, particularly with regard to superannuation and have continued to educate ourselves as much as possible in matters of investment - attending seminars, joining the AIA etc.  Attending some of the AIA annual conferences has been the most helpful as it has led us in many directions with its wonderful coverage of subjects.  We subscribed to Stockdoctor years ago and since then to  ActVest, Stock Val and Eureka Report (including Business Spectator) and Bodhi Gold charting, all of which we find helpful, together with books by Colin Nicholson and items by Roger Montgomery, among others. Over the years we have relied less on our stock broker and now do most of our trades online. We sold off most of the managed funds in September 2007 and intend redeeming the rest soon.      
We prefer shares with dividend imputation credits and/or chance of capital appreciation. Usually we would have less in cash but have been re-entering the market after having sold down somewhat over the last couple of years. (In hindsight, not enough!!)
We are both now over 70 and as we each reached the statutory age we took out allocated pensions within the fund.

In order to provide for ourselves for possibly many years to come we aim to keep the fund growing as long as we can given that withdrawals have to be made by way of pension.  We invest directly in shares, still have a small amount in managed funds and the rest is in cash. Normally, we like to have two years pension payment amounts in cash but over the last couple of years the percentage of cash has been higher.

We consider it of paramount importance to preserve our capital and to retain control over our assets.

We hope we have simplified our investments to the point where it is relatively easy for us to maintain  our fund and we are confident that it could be relatively easily managed by busy family members in conjunction with our accountants should we become incapacitated. This latter is a very complicated situation from a legal perspective and I think everyone should seek expert advice on this. (Refer also to article in October issue of AIA SMSF re Powers of Attorney).

In view of our ages we do not wish to enter the field of options, warrants or other complicated structures.  We wish to have flexibility and the capacity to add to, swap or liquidate holdings quickly at all times. We are trying to achieve diversity by investing in various sectors of activity with our share portfolio, including some companies with overseas interests. Our current portfolio:

Asset class	% of portfolio	Examples
Direct shares	72.5	BHP  WPL  CBA  WBC   JBH  WOW and others
Managed Funds	10.5	CFS WS Property Sec. and others
Cash	17

Brokerage fees are kept to a minimum with internet trading and bank fees are low. The managed funds fee for the services of the master trust and including trailing commission is approximately 1.9% to 2.6% but varies depending on the balance of the funds monthly. 

General Comments

Anyone wishing to manage their own superannuation fund should have the ability to do so, the will and time to do it, and must keep up to date as much as possible.  Getting expert advice is essential.  I would suggest superannuation specialists be consulted as it is a very complicated field requiring both accounting and legal knowledge.  It takes time and requires a good knowledge and understanding of financial matters.

It is imperative that you are aware of the obligations of Trustees so that you do not commit sins of omission or commission which would involve penalties that could result in your fund losing its status as a complying fund – seek expert opinion on this one.

I consider that in most cases it doesn’t matter how good your advisors, accountants, solicitors etc. are they cannot be aware of all their clients circumstances on a continuing basis.  It is important therefore for us to be keeping up with changes and ask the relevant questions as time goes by.  For instance, AIA recently had an article on Powers of Attorney and super funds which immediately had me sending a query to our accountant and solicitor to check that our document covered all that was necessary in this regard. 

Trust Deeds:  We have had a number of amendments done as statutory regulations have changed over the years. The last one was organised by our accountant and done by a leading legal form for $395. Some solicitors will quote $2000-3000 for the same service.  Shop around.   We have also been advised to keep copies of the original and all subsequent amendments. I think Daniel Butler, who has contributed articles to AIA bulletins, would be a good person to contact.  If not able to do it personally he could probably refer you on.

Estate Issues:  Also of importance is understanding the estate ramifications of disposal of funds on death, whether the assets are included in the will or not etc.  Another area of importance relates to Binding Death Nominations. These have had to be updated every three years which can be a problem if one forgets or becomes incapable of managing their own affairs.  I think they can now be considered non lapsing if your Trust Deed permits but you should seek expert advice on this.

Financial Advisers:  The first financial planner we consulted (well known firm) charged a fee for service and for a personal investment of my own assured me I would get the 4% commission refunded when I received my first statement. This did not happen fully. On one fund, I understand, he ended up receiving 2% of that as a trailing commission for some years until I cashed the investment in.  I also had trouble with the figures projected by this adviser with regards to yields on some fixed interest investments. This may have been a staff error but we decided he was not someone we wished to deal with in the future. If getting a plan from a financial planner I would suggest it worth the money to get a second opinion if the amount in question warrants this.

Managed Funds:  Although these can provide the answer for some, and access to areas that we may not so easily access directly, we are not happy with them. They are costly and in our view are not transparent enough for us.  We cannot possibly know if we have received the full benefit entitlement for dividends and dividend imputation etc. and if the tax treatments are as they should be. Costs are another issue.  We have done much better with our own direct investing.

Unit prices for non listed trusts are a big issue as far as I am concerned but one never hears this mentioned.  Even today I am hearing the arguments about fee for service v commissions but no one mentions unit prices.  Regulations may have changed but in the 1990s I contacted a firm who advertised extensively that they would only charge nil or 1% commission when others were charging 4-5%.  I asked if I would have to pay the difference on exit. No. I persevered and finally was told that if I took the lower entry fee option I would pay the additional amount in the unit price on purchase!!!  How can the average investor determine just what the price of units should be?

With our current holdings, the fund manager costs (which are additional to the administration costs of the master trust and trailing commission to adviser) are deducted from the unit values. We also have to be selective about when we sell. It seems that on the first day of every quarter unit prices drop. “The current account value may be understated due to distributions owing but not yet received” and “It is important to be aware that there is usually a delay between the date that the unit price drops and the date that a distribution payment is credited to your account. This is because it takes a number of weeks before we receive the distribution from the fund manager and we are able to pass it on to you”.

We therefore wait till the distributions have been credited to our account before selling.  Conversely, if buying it might be worth asking if there is a window of opportunity when unit prices are down. This is a bit like ex and cum dividends but one wonders just who benefits from our distributions for a few weeks. I have to admit that I am bewildered by all the unknowns involved with managed funds and hence our preference for direct investing.

Footnote:  With communications so good today we do not find it a problem to have our accountants in another part of the state. This was so even when we were in business. Although face to face meetings are advisable for major shifts it has worked well for us to use telephone, internet and postal contact. This may be helpful to those who move to a new area and try to find new advisers.

Margaret Studley is a member of the AIA.