Self-managed super is not Do-it-yourself

Glenn Freeman  |  03/07/2017Text size  Decrease  Increase  |  

Glenn Freeman: I'm Glenn Freeman for Morningstar. I'm joined today by Bryan Ashenden, head of financial literacy and advocacy with BT Financial Group.

Bryan, thanks for joining us today.

Bryan Ashenden: Pleasure to be here.

Freeman: Now just firstly, Bryan in the past you've spoken quite a bit about the risks and challenges that SMSF trustees face. What would you see as the number one risk.

Ashenden: I think with the amount of change that is being going on particularly from the 2016 Federal Budget. The biggest risk that most SMSF funds would face today is actually those who aren’t getting the appropriate advice and are almost thinking that a self-managed super fund is DIY fund. Now there is complexity in legislative changes, let alone the normal day-to-day functions of running a fund. But it really is complex and so people who aren’t getting the right advice and haven’t been getting along the way, right now are probably facing the biggest challenges, about trying to get themselves ready for the first of July and what that actually means for them.

Freeman: And how much understanding is there exactly what SMSF trustees can legally hold in their SMSF and what they can't.

Ashenden: I think most SMSF trustees probably got a good idea about what it is they can and can't, because I think there is a lot of literature out there that says a self-managed super fund, you've got fairly wide range as to what you can actually invest into. The biggest issue for complexity that probably comes up and spices around property and what type of property you can invest into and actually what you are going to do with it once you've invested into it.

Freeman: In your experience is there an over-exposure to property within SMSF's in Australia and how diversified are SMSF portfolios?

Ashenden: Well, certainly there has been I think a lot of talk about how self-managed super fund seemed to be heavily invested into the property market, and is that part of the issue that’s leading to concerns around property (bowls) and sales around the prices and so on. If you look at statistics that the tax office puts out self-managed super funds aren’t actually overweight into property themselves. But it does come back more to an individual fund by fund analysis because there will be some self-managed super funds where maybe the only asset or the most significant asset they have is property. And not that that’s not all out but it comes back to the question of when you look at things like the investment strategy for the fund. Is there appropriate diversification which doesn’t mean you have to be diversified, but you also need to make sure that you have got enough liquidity to pay the bills of the fund or pay up pension payments when they are required.

So, it's not I think about having too much of an exposure to property, but people really need to understand what implications are. Because if you need to sell an asset it's lot easier to sell shares and managed funds you can get your money back a lot quicker than it is to sell a property. And if you are forced into quick sale are you getting back the real value for the property that you otherwise would have wanted to have.

Freeman: Now Bryan the federal government has devoted quite a bit of time in recent years to keep an eye on the level of gearing held by SMSFs. What's your view on this?

Ashenden: It has always been a focus, since the government changed the rules and allowed superannuation funds and particularly its self-managed super funds to actually borrow to invest. There has been a lot of focus about have the rules gone too far and should they be tightened up or are they being used for the right purpose for the intended purpose that they were brought in. Now I think the government's pretty much been on record at saying. They are not looking to get rid of the ability of funds to borrow, but they want to make sure that the rules are bit tighter or there is more control over there. So we don’t see super funds getting to a position where they have overleveraged. And that’s really critical that we don’t get to that because this is people's retirement funds. And whilst in a self-managed super fund you can chose as to how you want to invest your money it's still important to remember that that money is there for retirement purposes. I think that’s the big concern that the government has been focusing on. Not the fact that funds can borrow, but making sure that they don’t over borrow and that everything is done on a market basis.

So, I think we'll always see the government focusing into that space a little bit. They made some announcements in the 2017 federal budget about how some rules will change if you have your own borrowing within a fund but that’s the sort of change that will impact people in terms of how much they can actually contribute into super. And how much they can transfer across into a pension and some of these are rules that the government is still talking about. The rest of them to the extent they being legislated. They only relate to new borrowings from the first of July.

Freeman: And Bryan just going back to that first question what are some of the other risks that SMSF trustees face.

Ashenden: Look I think there is a few things that trustees need to watch out for. One of those is to always make sure that your funds documentation and here we are particularly talking about things like trustee and the investment strategy are up to date and reviewed on a regular basis. So if we look back to again the 2016 federal budget there are lot of changes that were announced and it's really important for trustees to have a look at their trust and see does anything need to change. Because the government's saying we're going to change legislation in one way doesn’t necessarily reflect well into your self-managed super fund if it’s got some sort of rule that says you can’t actually do that. So, number one you are going to make sure you trustee and your investment strategy and how you invest is up-to-date.

Part of that goes back to the don’t think about self-managed super fund as a DIY fund. So if you are getting the right advice along the way these things should be addressed on a constant basis. You shouldn’t be facing into major hurdles at this time of the year. And one other one I think that a lot of trustees really need to think about is actually around the estate planning or succession planning within their fund and when there is always a lot of focus on how do we get death benefits right. And do we put in place binding nomination. Do we need to have binding nomination that says when I pass away my money is going to go to my spouse or to my kids.

But with an SMSF one of the other things that’s really critical to understand is how is the fund going to operate after you pass away. Because the remaining members of the fund if there are other members might want the fund to continue, but in terms of appointing new trustees making sure the fund can continue to operate and its not an extra burden left behind for those who stay. It's really critical to make sure that there are right plans in place to address that.

Freeman: And just finally is it becoming more or less complex to run an SMSF.

Ashenden: Well running a self-managed super fund is always a complex environment there are lot of rules, lot of regulations, lot of obligations that as a trustee you are responsible for and you need to understand it. So, I don’t think it's going to get any less complex. But also I don’t think it's becoming more. I think it's really a case of just working at how do you actually look to run your fund, to make it the most efficient process that it can be. So is that the use of certain types of investments we can get to consolidate reporting coming through. Is it just a question of how many different types of investments you have what sort of expertise do you bring in to actually assist you along the way. Those things can make a difference to I guess the day-to-day efficiency of running the fund. Complexity will always exist, it's just how do we manage that in the best way.

Freeman: That’s great. Thanks very much for your time today, Bryan.

Ashenden: Thank you.

Freeman: I'm Glenn Freeman for Morningstar and thanks for watching.

Video Archive...

Earnings season FY17 mixed bag so far
18/08/2017  Aside from a few high-profile earnings guidance misses, large-cap stocks are doing okay as FY17 reporting season passes halfway, says AMP chief economist Shane Oliver.
Self-managed super is not Do-it-yourself
03/07/2017  There are a few common pitfalls in running a self-managed super fund that mean trustees shouldn't go it alone entirely, says BT Financial Group's head of financial literacy, Bryan Ashenden.
How to guard against retirement threats
16/06/2017  As retirement approaches, even the best-laid plans can go awry, as Tim Steffen tells Christine Benz, Morningstar US.
No place for set-and-forget asset allocation
04/10/2016  A 2016 company reporting season overview and explanation of why dynamic asset allocation is so important, from Dr Shane Oliver, chief economist and director of investment strategy, AMP Capital.
Helping SMSF trustees negotiate super complexities
19/08/2016  Peter Hogan, head of technical at the SMSF Association, shares his insights on the changing super environment and how it will affect SMSF trustees.
Safe withdrawal rates for retirees
02/02/2016  Morningstar's Anthony Serhan explains why retirees in Australia should use lower initial safe withdrawal rates than those suggested in prior research.
Pitfalls of investing for retirement
30/09/2015  Bad behaviour before and in retirement can take a major hit to your savings. We outline the pitfalls to avoid if you want to maximise your pension pot.
4 retiree to-dos in a turbulent market
02/09/2015  Despite the market swings, retirees can control stuff like checking cash reserves and spending levels.
3 key risks for retirees
24/06/2015  Accurium SMSF technical services manager Melanie Dunn discusses three factors trustees should be aware of as they move from the accumulation to the retirement phase.
Top global tech opportunities
30/04/2015  Australia's foremost global investor Kerr Neilson identifies global drivers and those undervalued companies that are positioned for strong growth.
Key takeaways from the Murray inquiry, SuperStream
23/04/2015  The SMSF Association's Graeme Colley discusses important points from both the Murray inquiry and the SuperStream initiative, while also giving trustees tips on how to avoid unwanted "gardening leave".
Revisiting the sole purpose test
19/03/2015  It’s important that trustees are reminded about their obligations under the sole purpose test – a key requirement in SMSF compliance.
Trustees under the spotlight
--  SMSF Association’s Andrea Slattery talks about the growing professionalism of the industry and what it means for trustees.
Taxing times for trustees?
05/03/2015  The government may have moved to address the tax concessions into super but trustees face a number of potential taxing issues.
Key issues for SMSFs
02/02/2015  A government inquiry and tax concessions are among the key issues confronting trustees.
Top SMSF tips for 2015
21/01/2015  Keeping up-to-date on legislative changes, avoiding excess contributions and ensuring sufficient cash flow is in place are just some of the simple things trustees can do to get a better handle on their SMSF.
7 reasons why SMSFs outperform
22/07/2014  The key advantages to running a self-managed superannuation funds have also translated into strong performance.
What the advice reforms mean for SMSFs
09/07/2014  SPAA’s Graeme Colley outlines what SMSF trustees need to do to ensure the advice they are getting complies with the government’s proposed reforms.
A tax date with your SMSF
02/06/2014  SPAA's Graeme Colley outlines a number of important dates for tax payers as the 30 June deadline looms.
Keeping your SMSF simple
21/05/2014  Oasis Wealth's Barbara Smith offers some thoughts on the property market and some simple advice on how not to get into trouble with the ATO.
Getting SMSF ready for SuperStream
03/04/2014  SMSF members who accept employer contributions will need to prepare for the government’s new measure called SuperStream.
Is your SMSF audit ready?
27/03/2014  SMSF trustees face new audit requirements from the Australian Taxation Office
Key rulings for SMSFs
20/03/2014  AMP's Peter Burgess outlines key legislative considerations for trustees
Do trustees know best?
17/03/2014  --
Getting ready for contribution cap rises
13/03/2014  The indexation of the contribution caps will give people the opportunity to put more into superannuation.
3 key legislative changes for SMSF trustees
07/02/2014  Trustees need to grapple with a number of legislative changes made by the ATO.
5 new year resolutions
23/01/2014  Westpac's David Simon outlines five key new year resolutions that will maximise portfolio performance.
Getting value from your property portfolio
21/01/2014  Property expert Margaret Lomas outlines effective strategies for maximising a property portfolio and managing these assets in retirement.
What can SMSF trustees expect in 2014?
17/12/2013  A new government inquiry into financial services will be among the key issues trustees will have to grapple with in 2014.
Do SMSFs need a minimum balance?
30/10/2013  Should minimum balances be set for SMSFs in order for them to be run effectively?
Understanding new SMSF guidelines
20/09/2013  BT Financial Group’s Bryan Ashenden explains the proposed guidelines for advisers operating in the SMSF market and the implications for trustees.
What the Coalition means for super
13/09/2013  The new government will cut back on concessions for low-income earners and will most likely re-think excess contributions for SMSFs.
Key changes to super caps
25/07/2013  The latest changes to concessional superannuation caps may mean a change of strategy for trustees.
What the budget means for SMSFs
15/05/2013  While there were little in surprises in this week’s budget, there are a number of issues trustees still need to consider.
What to do with falling super contribution caps
--  With the government limiting how much you can contribute to super, a number of other wealth creation strategies are available.
SMSFs - the pros and cons
26/03/2012  Westpac’s David Simon outlines the benefits of SMSFS as well as the traps to avoid.
Cooper, super and SMSFs
--  Understanding the Cooper review's proposed changes to our super and SMSFs.
The changing role of fixed interest
21/09/2010  An inevitable rise in global bond yields may expose investors to negative returns - unless they prepare now.
Super's good, bad and the ugly
23/09/2010  We're not doing ourselves any favours by clinging to a lump-sum mentality when it comes to super.
Planning your DIY super in 2012
23/01/2012  Having the right plan is critical if trustees are to navigate the big changes to concessional caps this year.
Time to get out of cash?
01/09/2011  SMSFs have boosted their cash allocations but is it time to diversify into other asset classes?
All you need to know about SMSFs
31/03/2011  Grant Abbott discusses what attendees can expect at the upcoming Morningstar SMSF Trustee Strategy Day.
Death's effect on SMSF borrowings
06/10/2010  The death of an SMSF member has significant consequences when a gearing strategy is in place.
Lump sums have merit too
28/09/2010  Considering an income stream in retirement? Don't ignore lump sums.
Property acquisitions using gearing
22/09/2010  A look at some of the finer points about using limited recourse loans to purchase property within super funds.
5 ways SMSFs may become non-complying
13/09/2010  Becoming non-complying is one of the worst things that can happen to your fund. So avoid it.
Extra pay needs extra planning
31/05/2010  Extra pay, windfalls and bonuses are great but good planning can make it better.
Art for SMSFs' sake
31/08/2010  Artwork and collectables back on the table for SMSF investors.
Emerging trends in SMSFs
04/08/2010  SPAA chair Sharyn Long shares her knowledge of what SMSFs are up to at the moment.
Tax tips for SMSFs in FY10/11
19/07/2010  SPAA chair Sharyn Long shares her knowledge of what SMSFs are up to at the moment.
Getting SMSF taxes ready
--  We’ve put a line under FY09/10 but how do we best prepare our taxes for the year.
Putting that extra into super
--  Andrew Proebstl, chief executive of legalsuper tells us how the fund encouraged record voluntary contributions from members
Super no shelter for fraud
--  --
Do SMSFs seek advice?
--  SMSF members like control but do they eschew advice?
Super changes and SMSFs
--  Super has been tinkered with yet again but what are the implications for SMSFs?
Beware capital gains tax on SMSF rollovers
--  Certain activities in running a self managed super fund can trigger capital gains tax liabilities.
Avoid horrific penalties
--  The ATO is focused on excess contributions in SMSFs.
Insurance gets built-in for longer living
--  Lifetime income guarantee funds make sure your money won’t run out.
ETFs for easy diversification: pioneer
--  ETF pioneer Jim Ross of State Street Global Advisers explains why these products are gaining popularity.
Hefty tax for exceeding caps
--  What to do if you exceed the superannuation contribution caps.
Actuaries measure risks of ageing
--  The actuaries’ role in determining risks and helping governments formulate economic policy.
Penalties for your SMSF's poor report
--  SPAA chair Sharyn Long talks about the auditor contravention report and how SMSF trustees can best deal with them.
Ensuring your auditor is qualified
--  SPAA accredited auditors have now become approved auditors under the SIS Act.
Making the nest egg last the distance
--  --
Keep your super in the family
--  Is your SMSF for the whole family? Grant Abbott discusses if you should have insurance or other products included.
Penalties for your SMSF’s poor report
--  SPAA chair Sharyn Long talks about the auditor contravention report and how SMSF trustees can best deal with them.
New TPD insurance regulations
--  --
SMSF Reserves
--  --
Will your SMSF pass these tests?
--  How Australian is your SMSF? Dire consequences await those funds that fail to meet requirements.
SMSFs and gearing
--  SMSF expert Grant Abbott talks to Darin Tyson-Chan some of the basic facts surrounding the use of borrowing in an SMSF.
Binding death benefit nominations
--  SMSF Strategies principal Grant Abbott discusses the merits of having a binding death benefit nomination within an SMSF with Darin Tyson-Chan.
The SMSF in-house asset rule
--  Darin Tyson-Chan speaks to SMSF Strategies principal Grant Abbott about the amended in-house assets rule for SMSFs
Divorce and your SMSF - what you need to know
--  Breaking up is hard to do, especially without a contingency plan in your SMSF for divorce.
Trustee responsibility (pt 1)
--  Trustees often trip over the law with SMSFs, lawyer Peter Townsend warns in the first of this two-part interview.
Trustee responsibility (pt 2)
--  The second part of this SMSF discussion provides tips for trustees
Not too late for super tweaks
--  Tax time is over but tax planning around super need not be. Clearview's Dante De Gori explains
Maximum earnings and super contributions
--  Salary sacrificing? Understanding the 10 per cent maximum earnings rule is a must.
Could ETFs benefit your super?
--  What you need to know about Exchange Traded Funds and retirement savings
SMSFs and gearing
--  Administrative considerations with Andrew Biviano and Darin Tyson-Chan
Trustee Education
--  Liz Westover gives her recommended changes to superannuation trustee skill and knowledge.