Benefits of ETF in SMSF as opposed to Superannuation fund

Hi,

Currently have our superannuation in one the big firms.

I have read a little about how the SMSF fund is set up and functions.
Rather than paying x% fees with super fund, how does this compare to the costs/effort of running a SMSF with just a couple of ETF's?

Looking at buying and holding a representative portfolio and letting it compound.

Will only get taxed 15% on income, and nothing on capital gains until i sell?

goponcho said:

Hi,

Currently have our superannuation in one the big firms.

I have read a little about how the SMSF fund is set up and functions.
Rather than paying x% fees with super fund, how does this compare to the costs/effort of running a SMSF with just a couple of ETF's?

Looking at buying and holding a representative portfolio and letting it compound.

Will only get taxed 15% on income, and nothing on capital gains until i sell?

Click to expand...

So when you say Superannuation fund you mean "industry super" and you are now thinking about setting up an SMSF ( both are super funds hence this clarification)

It depends upon few factors
- Size of SMSF you wish to establish and it's ratio to the fixed fees of establishing it and compare those with the fees you are currently paying and do you think you can do better than the professionals?
- What you want to do with the SMSF funds? only shares/ ETF etc or Property also?
- The tax is same if it is industry super or SMSF
- If you do establish a SMSF for shares / etf trading, just make sure your Trustee Deed covers all sort of investment possibilities

Thanks for the reply, that is what i meant, comparing it to an industry superfund.

I want to leave my money in ETF's to try and reduce the costs associated with management.
Am only 30 years, and will be managing my wife's money too, so the amount should materially grow and i am guessing the fixed setup costs will be exceeded by the savings on management fees.

Hi goponcho, I am not trying to push a particular product but I have my super with ING Living Super.

With them you can buy and sell ASX top 300 stocks, LIC's and ETF's and the costs may be well lower than running a SMSF. For something like you said "leave my money in ETF's to try and reduce the costs associated with management" this ING account might well suit you.

I pay: $25 per Month to have the above facility + I then pay between .2% and .35% depending on the ETF, + brokerage for buys and sells.

Now lets use an example. If you have say 200K in ETF's then this will cost you, $25 x 12 = $300 + say .25% average MER = $500, + say 10 trades a year @ $20 per trade or .13% = $200 (minimum) = $1,000 per year

They do all tax reporting and auditing. All you do is allocate your funds. There are some rules and regulations as to what you can do so please read the PDS first.

Website here:https://www.ingdirect.com.au/superannuation/living-super.html

Share Trading and ETF list here: https://www.ingdirect.com.au/superannuation/tips-hints-guides/shares-etfs-lics.html

Good luck.

Bill M said:

Hi goponcho, I am not trying to push a particular product but I have my super with ING Living Super.

With them you can buy and sell ASX top 300 stocks, LIC's and ETF's and the costs may be well lower than running a SMSF. For something like you said "leave my money in ETF's to try and reduce the costs associated with management" this ING account might well suit you.

I pay: $25 per Month to have the above facility + I then pay between .2% and .35% depending on the ETF, + brokerage for buys and sells.

Now lets use an example. If you have say 200K in ETF's then this will cost you, $25 x 12 = $300 + say .25% average MER = $500, + say 10 trades a year @ $20 per trade or .13% = $200 (minimum) = $1,000 per year

They do all tax reporting and auditing. All you do is allocate your funds. There are some rules and regulations as to what you can do so please read the PDS first.


Website here:https://www.ingdirect.com.au/superannuation/living-super.html

Share Trading and ETF list here: https://www.ingdirect.com.au/superannuation/tips-hints-guides/shares-etfs-lics.html

Good luck.

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I was going to suggest similar, meaning there might be some industry super which allows such "Internal freedom" to choose !

Thanks for the suggestions
Will have a bit of a read, of which i havent done enough about this

goponcho said:

Hi,

Currently have our superannuation in one the big firms.

I have read a little about how the SMSF fund is set up and functions.
Rather than paying x% fees with super fund, how does this compare to the costs/effort of running a SMSF with just a couple of ETF's?

Looking at buying and holding a representative portfolio and letting it compound.

Will only get taxed 15% on income, and nothing on capital gains until i sell?

Click to expand...

First thing you should know about ETFs: How much do they siphon off via management fees?
You may easily pay as much or more than if you left your money with a Superfund Manager.
I was quite astounded when I came across this article:
http://www.marketwatch.com/story/th...et-2016-11-01?siteid=bigcharts&dist=bigcharts

Saw Australian Super had a return of 17% for the balanced option last calendar year. Even the average funds got more than 14%.

Highest was UniSuper (who always seem to do well) at 18.4%.
Lowest was Maritime Super Moderate 10.5%. I wonder if it stands for moderate returns as the 5 year result is only 6.1% a year.

Knobby22 said:

Saw Australian Super had a return of 17% for the balanced option last calendar year. Even the average funds got more than 14%.

Highest was UniSuper (who always seem to do well) at 18.4%.
Lowest was Maritime Super Moderate 10.5%. I wonder if it stands for moderate returns as the 5 year result is only 6.1% a year.

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Balanced is a misnomer. It implies 50:50, but most "Balanced" funds are 30:70 with 30 being Defensive (stable, Fixed Income buy for $100, sell for $100) assets and 70 being Growth, market priced or valuation dependent.

Now UniSuper's Balanced definition: "To invest in a diversified portfolio of mainly growth assets such as Australian (38) and international shares (22), property (5), infrastructure and private equity (5), with some fixed interest and cash investments (30)," with a High risk level.
AustralianSuper Balanced portfolio is 80 Growth (Aust equity 23, Internat equity 34, property 7 infrastructure 11 and PE 4), with 18 in Cash and Fixed Income and 2 in "Credit" where returns are driven by economic growth and quality of underlying collateral. And High risk for less than 5 years

I think there is a lot of "apples and oranges" comparisons here. Long term, things will revert to the mean, and it seems 8-9-10%pa over 10 years has been doing OK. The doomsters have been tipping that future returns may be less than that (distorted economic policy), so when funds have great year (local equities put on 25+ and international nearer 30) then its likely a few lean years will follow.

I wonder how they come up with these figures, most of the big institution s have a large exposure to the banks and they have had a large reversal, so in general they would require a lot of outperformers to give an 18% average.
Just my opinion.

Bill M said:

Hi goponcho, I am not trying to push a particular product but I have my super with ING Living Super.

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I noticed yesterday when I was browsing Canstar, that they only award ING Living Super 3 stars:

I have no info as to why. Your comment just reminded me of that.

Zaxon said:

I noticed yesterday when I was browsing Canstar, that they only award ING Living Super 3 stars:
View attachment 100546
I have no info as to why. Your comment just reminded me of that.

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Hi, that message was written 4 years ago and things have changed since then. I got out and transferred my super account elsewhere now.

They introduced a massive fee increase and as I warned them at the time customers would leave. When I pulled out my account surprise surprise they called me and asked if I could come into their office and have a talk about why I left. It was all too late, I would only give them 1 star now. Have a look at a website called productreview.com.au and check out ING Living Super and you will see what I mean, cheers.

Bill M said:

Hi, that message was written 4 years ago and things have changed since then. I got out and transferred my super account elsewhere now.

They introduced a massive fee increase and as I warned them at the time customers would leave. When I pulled out my account surprise surprise they called me and asked if I could come into their office and have a talk about why I left. It was all too late, I would only give them 1 star now. Have a look at a website called productreview.com.au and check out ING Living Super and you will see what I mean, cheers.

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I am currently using ING Living Super but it is time to find something cheaper, any suggestions?

goponcho said:

Hi,

Currently have our superannuation in one the big firms.

I have read a little about how the SMSF fund is set up and functions.
Rather than paying x% fees with super fund, how does this compare to the costs/effort of running a SMSF with just a couple of ETF's?

Looking at buying and holding a representative portfolio and letting it compound.

Will only get taxed 15% on income, and nothing on capital gains until i sell?

Click to expand...

The issue with an SMSF is not really the cost of setup, but the cost of ongoing compliance audits each year. The numbers being thrown around estimate the yearly compliance audit costs at around $3,000 and it is often reported that you need a fund of at least $200k to make it worthwhile.

Another option is a super fund that offers direct investment to the market. You can buy and sell shares, ETFs and LICs just as you would with a broker. The advantage is that they take care of all the paperwork and tax issues, which can make life easy.

If you want the option of having a super fund that offers direct investment to the market, you have a number of super funds offering this option as follows (this is not a full list). All of these super funds offer the ASX 300 plus the following number of ETFs

Australian Super - 36 ETFs

CBUS - 21 ETFs

Host Plus – 33 ETF

IOOF – 36 ETFs

ING – 145 ETFs

Legal Super - 65 ETFs
This includes access to the inverse ETF of BEAR, which is good if you want to hedge without selling out when you believe there will be a significant downturn.

Care Super - 35 ETFs
This includes access to the inverse ETF of BBOZ, (2 x leverage) which requires only half the amount to hedge the same portfolio as the BEAR ETF.

BT Super – 126 ETFs
Also includes 62 LICs many of which are outside the ASX 300


There are additional fees for the direct investment option and you need to weigh up whether you believe you can outperform the fund managers. Some members do for sure, although many do not.

Brokerage for the direct investment option ranges from $12.50 to around $22 a trade. The speed of trades vary between the funds, some are quite fast while others review every order before it is placed in the market.

Generally you get to participate in corporate actions such as rights issues, share splits and receive the dividends from your individual holdings.

However, there can be issues for participating in some Share Purchase Plans (SPP). If it is a rights issue where a defined amount of new shares can be purchased according to the shares currently held, (such as the recent New Century Zinc 2 for 7 rights SPP) most super funds with direct investment options allow you to participate and take up your entitlement.

However, if it is a SPP where each shareholder can apply for up to a maximum of $30,000 regardless of the shareholding, (such as the recent Credit Corp SPP), then you will be unable to participate. The reason is that the super fund hold the all the shares in the name of the super fund and for the purposes of the SPP, the entire holding is seen as being held by one shareholder. The super funds generally don’t allow you to participate in this type of SPP as the amount of the $30,000 to be divided and distributed to all members holding that stock, would be minuscule. Mind you I am sure the super fund takes up the entitlement and pockets the profit to enhance its own performance.

You might want to discuss the options with your accountant.

fiftyeight said:

I am currently using ING Living Super but it is time to find something cheaper, any suggestions?

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I am using ING Living Super also and have found them to be alright.

Beaches said:

The numbers being thrown around estimate the yearly compliance audit costs at around $3,000

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Don't believe everything one may read about costs, especially if it comes from a group which may have a self-interest against SMSF's - sticky fee money.. A claim of $3k for an audit is audacious. The cost to the SMSF of which I am the Trustee was $880.

Could depend on the complexity involved however.

Belli said:

Don't believe everything one may read about costs, especially if it comes from a group which may have a self-interest against SMSF's - sticky fee money.. A claim of $3k for an audit is audacious. The cost to the SMSF of which I am the Trustee was $880.

Could depend on the complexity involved however.

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That is spot on Belli, I have a SMSF with my wife and I as the members, as you say it costs about $800-$1,000 for accounting and audit.
There are heaps of online super fund accountants now, mine has a portal, so all buy-sells and dividend notifications go direct, so all that is required is to forward meetings minutes and the investment strategy and sign off on the end of year accounts.
If anything else is required, or if any changes to ATO regulations are enacted, the accountant emails and it is sorted.
Great service, can't speak highly enough of them.

sptrawler said:

That is spot on Belli, I have a SMSF with my wife and I as the members, as you say it costs about $800-$1,000 for accounting and audit.
There are heaps of online super fund accountants now, mine has a portal, so all buy-sells and dividend notifications go direct, so all that is required is to forward meetings minutes and the investment strategy and sign off on the end of year accounts.
If anything else is required, or if any changes to ATO regulations are enacted, the accountant emails and it is sorted.
Great service, can't speak highly enough of them.

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Yes, I'm slightly suss of some content of posts particularly when I don't know the source of the info.

There can be many variables in the costs associated with an SMSF. Reported blanket statements don't sit well with me. I have no idea if clients are happy to pay $3k or whatever. Maybe they are accessing a particular service which they are not inclined to undertake themselves.

I did some numbers and if I moved the SMSF to an industry funds the costs would exceed the present costs. Plus the Binding Death Benefit Nomination aspects. Plus virtually instantaneous access to cash when in retirement phase with a simple EFT. Plus in conjunction with a Will being able to transfer the shares of the Corporate Trustee of the SMSF to the Executor i.e. transfer of control on death of member.

I would move to an industry fund if I felt I could no longer be bothered with an SMSF or was unable to administer it but until then I prefer to keep the hands of others off the funds as far as possible. I have a rather sour opinion of some of teh shenaggians of a number of industry funds. No idea why they are paying to advertise of TV. Or handing out corporate tickets to events or sponsoring some of them. How does that benefit current members? Comes directly out of the Trustees pockets does it?

fiftyeight said:

I am currently using ING Living Super but it is time to find something cheaper, any suggestions?

Click to expand...

Hi fiftyeight, I changed over to QSUPER. I needed somewhere where I could buy and sell my own ETF's or stocks and QSUPER allows this and their fees were much less than ING.

They have what they call "Self Invest" you can buy most of the ASX top 300 plus a range of ETF's, 27 I think. Self Invest has it's limitations and I have contacted them about that but there has been no change with that.

Pros: Low Fees, 27 ETF's, invest inmost of the top 300 stocks, fees are capped at $900 p/a (not including ETF/shares and brokerage), they have several of their own structured funds, no audits, no reporting to the ATO as they handle all paperwork including capital gains and annual reports, reversionary pension arrangement or binding arrangements. Basically all I do is pick what I want and they do the rest.

Cons: Brokerage is a bit high (for me not an issue as I don't trade much), Can not invest in LIC's (asked but no action), Not enough ETF's (I like A200, not on the list), need to have 13 Months in pension payments in one of "their funds" so they can draw on it.

Generally I like QSUPER a lot. I've changed super funds a number of times and I have found QSUPER to be the best so far. Hope that helps.

Link to list of available ETF's: https://qsuper.qld.gov.au/investments/options/self-invest/exchange-traded-funds
and
While fees are necessary to cover the cost of managing your money, QSuper has an annual cap on administration fees.2 If you ever pay more than $900 a year, we'll refund the difference in July of the following financial year as a rebate – meaning more money towards your retirement.
https://qsuper.qld.gov.au/our-products/our-fees/fee-details

Chronos-Plutus said:

I am using ING Living Super also and have found them to be alright.

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They use to be alright, now their fees are a bit too high for me. Here is their fee schedule, it comes to nearly triple compared to what I am paying now. Add up all those percentages at the following link.
https://www.ing.com.au/pdf/ING_DIRECT_Living_Super_Product_Guide.pdf