CHOICE membership

SMSF - buying and selling units in managed funds

superannuation

#1

I’m considering switching to a SMSF as a move from Super to retirement. I’d like part of my portfolio to include Managed funds, but want to have the ability to switch between funds myself. The hard part is the decision making which I have to do, FPs aren’t allowed to do, and the actual online transaction seems like a task a trained monkey ought to do, and ought to take a few moments not several days.

• Is there a sort of ASX type clearance house for such funds?
• Are some funds available through ASX, that I can buy and sell units?
• I’m increasingly more concerned about ethical investment, eg, anti-fossil fuels, armaments, tobacco, etc.


#2

I am not a financial adviser and this is not financial advice.

There are a bunch of Exchange Traded Funds (ETFs) that allow you to buy into managed funds without the hassle and paperwork i.e. just the normal process of buying on the ASX, hopefully online.

I don’t have an SMSF and don’t know what restrictions might be unique to that scenario.


#3

Like @person, this is not financial advice but to highlight another option in addition tomanaged funds, and may address the questions you have raised about liquidity, buying and selling and special areas of investment.

There arelisted investment companies which trade on the ASX (viz…bought and sold like shares). There are similarities between MFs and LICs, as well as some notable differences.

There are also LICs which specialise in ethical investments or specific investment sectors.

At the end of the day, any investment has risks and one needs to be comfortable with the level of risk taken on.

It is also suggested that financial advice, possibly from a SMSF specialist, is also obtained as SMSF may not suit every individual. The ATO also has some general information which may be useful as a starting point…


#4

A general problem with Financial Planners, accountants, and the many sources of advice about Super and retirement, and even the gov’t bodies, is they don’t actually want you to Self Manage, they want you to use them, and pay them handsomely for it.
To be honest I don’t think the motherhood level of advice they are allowed to give is worth very much. The actual decision making is required of the investor, and there are risks involved. Having made that decision, most of these supposed service providers then want you to tell them the specific change you want, eg, switch $xxx from, say, a property fund to a mining fund; they then do that at their convenience, it usually takes several days, by which time you may want to make another change, and they charge you a fee, for doing a very simple online transaction. There are some situations and funds where the investor can do this, ie, take the service provider out of the loop, but at least as many where you can’t.


#5

Are ETFs actual funds or specific funds that follow indexes? I get the impression that Indexes don’t pick out the best of the bunch from a particular sector, the role one hopes a Fund Manager undertakes successfully, rather it just a measure of an entire sector, like the whole of pharmaceuticals, but I could be wrong?


#6

ETFs that are actively managed are thin on the ground. Most are, as you suggest, tracking an index.


#7

There are professionals which provide advice to thise who chose to set up avSMSF, as it is very complex and challenging to know all the current rules (they tend to change as often as the government), tax implications and also risks.

Such professionals are there to answer questions and provide support…not to take over the running of the SMSF. Many can also action, if required, one’s own investment decisons in relation to the SMSF. A good professional will look after your interests, and not their own. It can be difficult to find a good one, but usually word of mouth (asking friends with SMSFs who they use) is a good starting point.

Good luck if you chose to try and do it yourself without professional advice or support. It is something I would not be willing to do (or take on the risk in doing) as I am not an expert in the field.


#8

There is a very good Dummies book on SMSF, I borrowed from my library, get a recent edn. Explains all the requirements, and which need professional input and which don’t. Small amount of setup, an annual audit for taxation, plus good record keeping.


#9

The latest (3rd edition) was published in 2015, and won’t cover any of the changes made to the super system since that date…some of which are summarised here.


#10

Have you read the book?


#11

EDIT: To correct my mistake on what may be banned as pointed out by @person with my thanks :smile:

ETFs and Binary Options are to be probably banned for sale to Australian Clients I believe by ASIC as they are too risky:


#12

I don’t think so. The risk aspect related to CFDs and binary options. https://www.abc.net.au/news/2019-08-22/asic-flags-major-changes-to-online-trading-industry/11437550

The complaint with LICs is the sales commission and the complaint with Active ETFs is the bid/offer spread and the lack of transparency.

If you yourself decide to buy into a LIC, and you do so “on market”, the concern about sales commissions doesn’t arise.


#13

The AFR made a very simple pitch concerning SMSF.

Considering the large number of new funds created each year?

It would appear reasonable that there are investors capable of independently setting up an SMSF and maintaining compliance with the strict regulations.

The investment decisions that follow, and required understanding of the complexities of the various products, markets and economies suggest SMSF trustees know much more than the average consumer.

I wonder where these experts go when they need advice on how different financial products are traded?


#14

My central question regarded how one accesses and changes funds as condition change? (Not there hasn’t been some interesting talk about where to get SMSF advice and a potential ASX product, ie, LICs and ETFs)


#15

I cannot comment on SMSF management as my Super is a business managed fund. I am sure you probably have looked at the MoneySmart site and read their advice but just in case the following may be helpful if you haven’t:

And you may find this education program useful:

http://www.smsftrustee.com/cpa/htm/home.asp

From my understanding you (the trustees) can allow FPs to make decisions but you remain the one/s who is/are responsible for those decisions. As there is no APRA enforced coverage for compensation the risk is obviously borne entirely by the trustee/s.

Finally if you decide to get out of or are no longer capable of running your SMSF it can be a lot more onerous and costly to do so.

Perhaps looking for ethical options in Industry Super Funds may meet most of your needs as an example of one such fund https://www.australianethical.com.au/super/ or a listing is here https://www.finder.com.au/super-funds/ethical-super-funds


#16

The essence of money management is monitoring and change mgt. Don’t put all your eggs in one basket, don’t put it in one investment and just leave it there. This isi the shortcoming of the SMSF advice, ie, they talk about the formal requirements, their costs and workload. But, it doesn’t provide advice about how to move your investment as conditions change. Orgs like Canstar provide great data about the performance of various sources including hundreds of funds, but how to do you access them, and more importantly move from one to another.

If you have your super/retirement through say Colonial First State, they provide optional managed funds, not just their own, that you can use, and ‘Switch’, although there are often limitations on switching. each provider has different pool of funds you can access. If you are lucky, your pool feature regularly in Canstar’s shortlist of your fund options!


#17

Generally, you don’t. It is generally inflexible. Managed funds don’t want you chopping and changing because it may require them to liquidate and acquire assets (as an open-ended investment).

Whether ETFs are a solution for you depends on the granularity that you are after. You can use ETFs to migrate between asset classes / change asset class weightings. You could use that to back your judgement about overall (big picture) trends.

If you want a finer level of granularity then you may need to own the individual shares directly in the SMSF, which is only really viable if your super fund balance is high enough to do that while still having adequate diversification.

Whether you have the skills, knowledge and judgement to make those changes as conditions change is another question. If you make a bad call, you can disadvantage your SMSF, just as easily as you can advantage it if you make a good call. You would want to have a proven and measured track record of good calls, such as you might have from investing directly in the market on your own behalf (i.e. outside of super).


#18

In my experience that isn’t accurate. Whether its IOOF, CFS, AMP, etc, each Super/Pension product has a range of different classes of Managed funds that anyone can move their investment around. The term used, is ‘Switch’. So, you could be invested with a % in several different funds, eg, 25% in health, 10% in property, 40 in Small caps, remainder in banks; or you might choice to have a more packaged choice eg, conservative, where that mix is chosen by the manager. You can then switch from say Conservative to your chosen distribution, in an almost infinite ways. The limitation is that each company, eg, CFS, has a limited choice, whereas Canstar type orgs review the full breadth of them.

Here is link to one of two CFS super products: http://www.colonialfirststate.com.au/Price_performance/findFund.aspx?menutabtype=&CompanyCode=001&Public=1&MainGroup=SF&BrandName=FC&ProductIDs=11&Product=FirstChoice+Wholesale+Personal+Super&ACCodes=&ACText=&SearchType=FindAFund&Multi=False&Hedge=False&IvstType=Superannuation+products&IvstGroup=&APIR=&FundIDs=&FundName=&FundNames=&SearchProdIDs=11&Redirect=1&FundProductID=11&FundProductName=FirstChoice%20Wholesale%20Personal%20Super


#19

Something to be aware of with manage funds, is that removal of funds when when one needs some additional cash may not be possible or guaranteed. After the GFC, some of the major and well known managed funds froze their funds to prevent fund holders removing their equity from the funds. The ATO has more information about frozen funds:

https://asic.gov.au/about-asic/news-centre/key-matters/information-for-investors-in-frozen-funds/

Are frozen funds likely to occur again in the future? In my opinion is yes in the right conditions. This will particular be the case when say a fund has a significant portion of its funds from superannuation accounts in the post retirement phases, when there is a downturn (either in income generated within the funds resulting in reduced distributions or loss in fund value per unit) and there is a requirement to draw on such funds by fund members (say retirees to support their post retirement lifestyles). We had a retired relation who suffered the consequences of a frozen managed fund because of the GFC.

As outlined above, one needs to be sure of their own risk profile and what risks one is comfortable in taking on. Unless one is across all investment types, their risks and returns and also implications as far as retirement savings/incomes, it is suggested that one seek some professional advice. Professional/experts in the investment field (not necessarily those who specialise in SMSF advice), can prove advice on risks and implications of such risks for each individual, based on their stage in life and also their risk appetite. They can also provide advice on how to structure one’s affairs to minimise any potential risks.


#20

With any move to a SMSF the member must also have an exit clause or plan. How long do you want to be looking after the admin & investment decisions for a SMSF? Age onset dementia, other medical conditions, lack of interest, time on computer… Is your partner involved or wants to be involved? Are you investing directly already? Try before you set up a SMSF, by investing small amounts with own funds directly into ASX shares. Australian Shareholders Association has a wealth of information and is recommended for those doing their own investing. Note there are already a number of superannuation funds that have ethical investment portofilios eg Australian Ethical, some of the large Industry Funds eg Aust Super… Check you local U3A group…