How to run your own successful Super Fund

[Panaman]

Just something to think about is that those funds you have invested in all have their internal fees. It's good to keep an eye on them because they do add up. Most are a lot cheaper than what many super fund charge for similar investments thought.

AFI reported they had a MER of 0.18% which seems a pretty good deal for the kind of performance they're providing. A lot of the ETFs seem to be from 0.4% up, but stil pretty cheap fro the diversification they offer.

Yes the internal fees that are charged do add up, most of the ETF,s are pretty low as you say, the Managed funds and most LIC,s are from what I discovered more and some managed funds considerably more!, although BKI which I thought was the best LIC,s around for large ASX stocks has one of the lowest MER of 0.17% and also doesn’t charge performance fees.

One thing I noticed when looking into doing this was many big Super funds don’t invest your money especially the industry funds, there really just administrators in the same way esuperfund are, but charge a percentage rather than a set fee to run your super, so you pay there “advertised” super low fee of under 1% they then outsource your money to the likes of BT, Macquarie etc who then charge there fees plus I expect performance and other management fees, so effectively from what I can see they are no different to the big retail funds like AMP who do invest your money.

Fees are fact of life but some of these big Super funds are raking it in for doing not that much really. Outsource the hard bit of were to invest the funds and charge 1% to administer, on the average account over the period of your working life it adds up to a hefty chunk of 10,s if not over $100,000 when you include the "hidden" fees from outsourcing a good portion of which you could save in my opinion and get a better investement return by running your own SMSF.

 

[Wysiwyg]

$699 a year to esuperfund rather than couple of percent a year to some big bank.

Plus ATO annual supervisory levy of $388 for June 2014. Levy was $150 when I started so increasing yearly.

 

[Ves]

Plus ATO annual supervisory levy of $388 for June 2014. Levy was $150 when I started so increasing yearly.

It's $259 for 2014, 2015, 2016 and 2017. You're paying $388 because they changed the payment timing to be upfront rather than in-arrears. The 2013 and 2014 SMSF annual returns are the transition years.

On the 2013 SMSF annual return the levy payable was $321. $191 related to the 2013FY, and $130 related to 50% of 2014FY upfront.

On the 2014 SMSF annual return the levy payable is $388 as you said. $129 is 50% of the $259 2014FY levy that is still owning, and $259 is 100% of the 2015 levy.

http://www.ato.gov.au/Rates/SMSF-supervisory-levy---2013-to-2016-financial-years/

 

[Wysiwyg]

It's $259 for 2014, 2015, 2016 and 2017. You're paying $388 because they changed the payment timing to be upfront rather than in-arrears. The 2013 and 2014 SMSF annual returns are the transition years.

Yes that is why more is paid. If one is caught in this following example then $518 is payable. The $699 ESuperfund yearly cost escalates to $1217 per year. Much more than is mentioned elsewhere.

Example 3: New fund established on or after 1 July 2013 and not wound up

XYZ SMSF was established on 28 August 2013. When the fund lodges its first required return, which in this case is the 2014 SAR, it must pay $518. This amount is $259 for the 2013-14 financial year plus $259 for the 2014-15 financial year.

 

[galumay]

I am looking into setting up a SMSF and I have been getting some good advice from Jorgon via email, but I dont want to bug him too much until I decide to go ahead and purchase his package.

I will probably have a few questions but first is about bank accounts, I see UBank like most banks offer SMSF accounts, but like the others their interest rates are significantly lower than could be achieved with a normal UBank account.

I assume that UBank will only let you open an account in the name of the trustee as an SMSF account, is there any way to then access the better interest rates available to their individual customers? ie Use the SMSF as the transaction account for monies into and out of the fund, but be able to invest at better interest rates for the cash portion?

 

[Bill M]

I assume that UBank will only let you open an account in the name of the trustee as an SMSF account, is there any way to then access the better interest rates available to their individual customers? ie Use the SMSF as the transaction account for monies into and out of the fund, but be able to invest at better interest rates for the cash portion?

I don't think this is possible as they state what the interest rate is for a SMSF on the website. You could call them and ask but I don't think you will get very far.

I'm in a position right now where I am debating where to put my cash. I have 2 options,

1. Get 4.62% from UBank outside of super and pay 19% tax

2. Get 3.96% with UBank with a SMSF and pay 15% tax.

Option 1 wins for me. I really don't know why SMSF's are penalised with interest rates compared to normal accounts.

By the way, the best you can get with ESuperfunds partners is only 3.9% for a 12 Month Term Deposit, all of a sudden UBank is looking good.

http://esuperfund.com.au/smsf-term-deposits/interest-rates.html

 

[Julia]

I assume that UBank will only let you open an account in the name of the trustee as an SMSF account, is there any way to then access the better interest rates available to their individual customers? ie Use the SMSF as the transaction account for monies into and out of the fund, but be able to invest at better interest rates for the cash portion?

I have no experience with UBank, but have run into the same situation with one of the big four with whom the bulk of my banking exists.
If you have a good personal relationship with your bank then much is possible.

But if you're just accessing UBank as yet another SMSF customer I doubt anything other than what is publicly offered will be available.

FWIW I've found Rabodirect to be great to deal with and to mostly offer competitive rates.
Unless you're planning to keep a substantial amount in a cash a/c the small difference in interest rates really isn't worth stuffing about over imo.

 

[Panaman]

Each time I have saved a bit more cash im adding to the portfolio, also have used personal savings to make after tax contributions, seems to make sense, not that long really before my preservation age so if the worst comes to worst its not like I have to wait decades to access funds and the bank will lend against that if need be im sure.

Added Contango micro cap (CTN) for a bit more exposure to small stocks, my timing on that was accidentally perfect, paid $1 only about 6 weeks ago which is about there recent low and they are now $1-10, also picked up State Street Global dividend ETF (WDIV) for bit more exposure to overseas markets and a good yield which is high on my criteria for choosing funds or ETF,s, also took up my full entitlement to the BKI share offer, so that is now my second biggest holding behind SYI.

Decided to change the Property ETF I was using so sold SLF and Bought Vanguard Property ETF(VAP), one reason was SLF wont allow dividend reinvestment which I didn’t realise, also feel the Vanguard ETF is a bit more robust and diverse, made a profit on the sale and VAP has since done well.

Only fund that has floundered a bit is CAM but with dividends and if I include the tradeable options entitlement I received its still ahead by the smallest amount, very disappointing that one though but is for the long term and historically it has done well, only stock underwater is WDIV as of Friday but only just, also early days for that so cant expect too much.

 

[sydboy007]

Decided to change the Property ETF I was using so sold SLF and Bought Vanguard Property ETF(VAP), one reason was SLF wont allow dividend reinvestment which I didn’t realise, also feel the Vanguard ETF is a bit more robust and diverse, made a profit on the sale and VAP has since done well.

Only fund that has floundered a bit is CAM but with dividends and if I include the tradeable options entitlement I received its still ahead by the smallest amount, very disappointing that one though but is for the long term and historically it has done well, only stock underwater is WDIV as of Friday but only just, also early days for that so cant expect too much.

I've never liked dividend reinvestment schemes because they make CGT a nightmare as there's multiple share values and you don't have control of the price you pay. I like the cash so I can decide where my money is invested next.

WDIV has certainly taken a dive recently. I'm hoping for a decent 10% market fall to jump out of some bonds that have made 13% in the last 12 months and are looking a bit over cooked. Looking at most corporate bonds I've noticed a clear shift in the market to now believing interest are going to be low for an extended period. Yields are definitely compressing.

 

[sydboy007]

Seems ETFs are starting to become main stream in Australia

http://www.financialobserver.com.au/articles/etf-market-breaks-through-12-billion

BetaShares managing director Alex Vynokur said the $500 million July rise in FUM should be seen in the context of the total first half 2014 increase of $1.7 billion.

 

[Panaman]

Seems ETFs are starting to become main stream in Australia

http://www.financialobserver.com.au/articles/etf-market-breaks-through-12-billion

BetaShares managing director Alex Vynokur said the $500 million July rise in FUM should be seen in the context of the total first half 2014 increase of $1.7 billion.

Doesn’t surprise me in the least, they really are the way forward when it comes to SMSF and longer term investments, also outperform after fees many of the big fund managers simply by following an index.

 

[Julia]

Doesn’t surprise me in the least, they really are the way forward when it comes to SMSF

Why do you say that? One of the main reasons for establishing a SMSF is to have complete control over how the funds are invested, so I don't see the point in setting it up if all you're going to do is toss the money into some ETF.

A SMSF offers the capacity to quickly switch between asset classes when that's indicated, and to monitor every individual company into which one wants to invest.

 

[galumay]

Why do you say that? One of the main reasons for establishing a SMSF is to have complete control over how the funds are invested, so I don't see the point in setting it up if all you're going to do is toss the money into some ETF.

A SMSF offers the capacity to quickly switch between asset classes when that's indicated, and to monitor every individual company into which one wants to invest.

Very true Julia, also I cant see any point in the huge amount of paperwork and ongoing effort for a SMSF if you are just going to invest in ETF's, plenty of other options to do that without the complication of an SMSF structure.

Having finally completed the setup of my SMSF, I am not sure I would have even done it if I had been fully aware of just how much work was involved!

 

[Panaman]

Why do you say that? One of the main reasons for establishing a SMSF is to have complete control over how the funds are invested, so I don't see the point in setting it up if all you're going to do is toss the money into some ETF.

A SMSF offers the capacity to quickly switch between asset classes when that's indicated, and to monitor every individual company into which one wants to invest.

Not sure why you say that Julia?

With ETF,s I have full control of were my super is invested, I can buy into anything from the Top 20/50/100/200/300 stocks to the entire market or sector specific like financial, mining, high dividend or the small ordinary’s, I can even buy a bear funds if I think the market or sectors will go down, then there are ETF,s on Bonds, currency’s, property and commodities, I want exposure to Agricultural then there is an ETF, I want something specific like Crude oil, gold or Soybeans, there is an ETF, Overseas markets, hedged or unhedged and anything and everything in between all available and tradeable in one easy instant transaction.

ETF,s are very simple, they don’t try and beat the index or commodity there benchmarked too, they simply replicate it at very low cost, no performance fees, no fees for analysts and experts to run the fund just very low management fees for tracking an index and means the average person can get the same exposure to assets that the big funds can.

 

[Panaman]

Very true Julia, also I cant see any point in the huge amount of paperwork and ongoing effort for a SMSF if you are just going to invest in ETF's, plenty of other options to do that without the complication of an SMSF structure.

Having finally completed the setup of my SMSF, I am not sure I would have even done it if I had been fully aware of just how much work was involved!

Not sure were all this work to run a SMSF comes from?, from were im sitting, once set up its pretty simple, not much more work or effort from doing my personal tax return, just need to be organised and keep track of things during the year.

ETF,s if anything makes it simpler, as well as dividend/distribution statements as they occur, you receive an annual statement of what and were distribution came from, makes it very easy.

 

[sydboy007]

Not sure were all this work to run a SMSF comes from?, from were im sitting, once set up its pretty simple, not much more work or effort from doing my personal tax return, just need to be organised and keep track of things during the year.

ETF,s if anything makes it simpler, as well as dividend/distribution statements as they occur, you receive an annual statement of what and were distribution came from, makes it very easy.

I learned after doing my first tax return last year to just scan each dividend notice and annual tax statement for each investment. Then they're backed up onto my google drive and already to be uploaded to esuper fund as required. Now I don't have to worry about misplacing one of the statements.

I am starting to think I should maybe start adding to my current holdings than add too many more as I'm closing in on 50 dividend noticed and annual statements to keep a track of. Thankfully esuperfudn keep a track of the bank account so that's 1 less thing to worry about.

 

[Junior]

I learned after doing my first tax return last year to just scan each dividend notice and annual tax statement for each investment. Then they're backed up onto my google drive and already to be uploaded to esuper fund as required. Now I don't have to worry about misplacing one of the statements.

I am starting to think I should maybe start adding to my current holdings than add too many more as I'm closing in on 50 dividend noticed and annual statements to keep a track of. Thankfully esuperfudn keep a track of the bank account so that's 1 less thing to worry about.

You should be able to nominate with the registries to receive Dividend/distribution notices by email instead of mail. This might speed things up a little bit.

 

[Panaman]

I learned after doing my first tax return last year to just scan each dividend notice and annual tax statement for each investment. Then they're backed up onto my google drive and already to be uploaded to esuper fund as required. Now I don't have to worry about misplacing one of the statements.

I am starting to think I should maybe start adding to my current holdings than add too many more as I'm closing in on 50 dividend noticed and annual statements to keep a track of. Thankfully esuperfudn keep a track of the bank account so that's 1 less thing to worry about.

Exactly esuperfund do most of it for you anyway, you just log in to the client portal, verify bank and broker transactions, forward or scan and email statements and its all done for you, just a simple matter of keeping records during the year, its not difficult, complicated or time consuming.

Some people seem to have an issue with only being able to use certain brokers and banks with esuperfund but there all competitive and everything available if using your own accountant is available to you anyway.

 

[Junior]

Exactly esuperfund do most of it for you anyway, you just log in to the client portal, verify bank and broker transactions, forward or scan and email statements and its all done for you, just a simple matter of keeping records during the year, its not difficult, complicated or time consuming.

Some people seem to have an issue with only being able to use certain brokers and banks with esuperfund but there all competitive and everything available if using your own accountant is available to you anyway.

Another service I'm aware of is More Superannuation.

They allow you to use pretty much any product, and don't force you to use a particular bank or broking account. Their fees are comparable to eSuperfund. $650 for fund establishment including Corp Trustee. Ongoing is around $1,100 per annum deducted in equal monthly instalments. A little more expensive, but they seem to be more flexible.

I have no affiliation with More, but am using their service with my current employer and have found them to be quick and easy so far. I'm not a solicitor or SMSF accountant so can't comment re the quality of their compliance docs and audits.

 

[Julia]

Very true Julia, also I cant see any point in the huge amount of paperwork and ongoing effort for a SMSF if you are just going to invest in ETF's, plenty of other options to do that without the complication of an SMSF structure.

Having finally completed the setup of my SMSF, I am not sure I would have even done it if I had been fully aware of just how much work was involved!

Hello galumay, I'm sure now that you have the setup completed, you'll soon find the record keeping is little different from what you'd be doing outside of a SMSF. I know what you mean, however: about five years ago I just changed from two trustee structure to corporate trustee and the amount of paperwork was far more than I'd anticipated.

As suggested above, if you electronically file everything as it arrives, ie dividend notices, bank statements etc, end of f/y will be easy. I also get hard copy of everything sent by post as well: it doesn't cost me anything and provides a backup should there be electronic failure.
Good luck with it.

Not sure why you say that Julia?

I already made it clear in my earlier post.

I'd have thought most people going to the trouble and accepting the responsibility of running their own SF would be doing so with the purpose of having full control and in the belief that they can outperform any index.

If you're content to just accept the performance of an index then that's up to you.
By selecting individual stocks, some for their growth potential and others for their stability and grossed up yield, it's possible to do a lot better than that.

ETF,s are very simple, they don’t try and beat the index or commodity there benchmarked too, they simply replicate it at very low cost, no performance fees, no fees for analysts and experts to run the fund just very low management fees for tracking an index and means the average person can get the same exposure to assets that the big funds can.

Sure. Yes, as I've agreed above, all you're doing is replicating the index and paying a management fee for the privilege.

Not sure were all this work to run a SMSF comes from?, from were im sitting, once set up its pretty simple, not much more work or effort from doing my personal tax return, just need to be organised and keep track of things during the year.

That's true, but the penalties for getting it wrong are substantial. I'll give you an example.
About eight years ago, I'd had all my info to my then accountant a full six months before the tax return for the SMSF had to be lodged. Six weeks out, not having any indication it was close to completion, I reminded her of the due date. "No worries, it would all be done in time."

Two weeks before, following two more queries from me, I'd still not seen anything. It turned out that she still had not completed the return, let alone sent it off to the auditor. When I expressed my anxiety about this, she said "oh, don't worry about the audit: we have an arrangement; he just signs off on it without seeing it. It will all be lodged on time".

Obviously it's not acceptable to me that the whole audit process is a sham rather than a reassurance to me of the validity of her work. Too late to send everything to another accountant. She refused to negotiate an extension with the ATO, so I had to do this myself. They were understanding and helpful, but it should never have happened.

The point of this anecdote is not just to describe a thoroughly shonky accountant (about whom I later lodged an official complaint, she was censured and is no longer practising), but to point out that - although I was not at fault in the late lodgement of this return, I am still considered responsible for the fact that it was late.
The ATO could have been less understanding and I could have been significantly penalised.

So I'd just suggest being extremely careful about understanding any changes in legislation or other requirements. Quite minimal transgressions can render your fund non-compliant and the repercussions are considerable. For that reason I prefer to use my own accountant who is then also available for any non-super advice throughout the year.