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Self-managed super is not Do-it-yourself
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.
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. Earnings season FY17 mixed bag so far Glenn Freeman 18/08/2017 http://video.morningstar.com/aus/video/
Glenn Freeman: I'm Glenn Freeman for Morningstar, and I'm joined today by Shane Oliver, chief economist with AMP Capital.
Shane, thanks for joining us today.
Shane Oliver: It's a pleasure to be here.
Freeman: Now, Shane, just firstly, back in April, you said you didn't see Australian companies as particularly cheap nor were they overly expensive. Is this still the case?
Oliver: It's pretty much still the case. I would regard the Aussie share market is around fair value. If you look at traditional metric of the price to earnings multiple, it's a little bit above fair value. If you look at indicators which allow for the low level of interest rates, low bond yields, it's a little bit cheap, little bit under fair value.
So, on that basis, I'd say, it's in the ballpark of around fair value as things currently stand. And oddly enough, for much of this year, the last few months or so, we've really just been bouncing up and down, and that's perhaps partly an indication that investors are finding it hard to find undervaluation or overvaluation.
Freeman: And we're now around halfway through the annual earnings season. What's your take so far?
Oliver: I guess it depends on how you assess it. If you look at the number of companies surprising on the upside and good news stories coming out, I'd say it's a mixed bag. There's actually been slightly less companies surprising on the upside than it was, say, back in the February reporting season. So, that's a bit of a disappointment. And there have been some high-profile misses in there.
Flipside though, is that profits are up roughly 18 per cent over the last financial year. A big driver of that, of course, is the resources sector where profits are up about 130 per cent, 135 per cent on the back of the surge in commodity prices.
And of course, if you strip them out, profit growth in the overall market excluding resources is around 5 per cent, 5.5 per cent. So, in that sense, it's sort of okay. Profits have gone from a situation of two consecutive years of declines to an environment where they're now rising again.
The other thing, of course, is that if it's dividend you're after, then you're still seeing increases in dividends. So, not only are profits up, but companies are paying out more dividends. About 80 per cent of the companies have increased their dividends on my count so far. So, mixed bag, but good news is that profits are up and the dividends are continuing to rise.
Freeman: In terms of currency, how much of a risk does the rising Australian dollar pose for the Australian economy and how can local investors position themselves in this regard?
Oliver: I think the rising Australian dollar that we've seen over the last month or so, where we sort of pushed up above $0.80 at one stage, that is a bit of a concern for the local economy. We're still in an environment where mining investment is still falling. Sometime over the next year housing construction will start to top out and that will become a bit of a drag on the economy as housing construction starts to slow down. And consumer spending is a bit subdued for a whole a bunch of reasons, low wages being the most well-known of one of those reasons. But all of those things just be still need help from a lower Australian dollar to drive sectors like tourism, manufacturers who are still with us, and higher education, in other words, to boost the competitiveness of the Aussie economy. So, if the Aussie dollar starts going up, that could actually be a bit of a drag on the Australian economy.
How should investors play this? I guess, what the Aussie does is very important for investors. Not only does it affect the performance of the Australian share market and Australian companies that are affected by moves in the currency, but also affects your investment overseas. Given my view that the Aussie dollar will tend to go down rather than up over the next 12 months because I think the Reserve Bank is still set to leave interest rates on hold, whereas the Fed is more likely to raise them. So, we are going to see this continuing narrowing in interest differential between Australia and the U.S. which works against the Aussie dollar. So, given that view, the Aussie dollar, I think, will more likely fall rather than rise. It still makes sense for investors to have a decent exposure to offshore assets, offshore shares, for example, and do that on an unhedged basis. So, I think, that's the key message in terms of the currency for investors at present.
Freeman: We hear a lot about passive investing and that's for all types of investors, including for SMSF trustees. Do you see this as something of a shorter-term trend or is a long-term shift?
Oliver: I think the shift towards ETFs is part of a long-term shift. It reflects the evolution of investment markets, but it's also partly cyclical. But I think as we move into a world where eventually interest rates start to rise again, that could bring active management back into vogue and therefore, this shift towards ETFs, passive ETFs, in particular, will take a bit of a pause. So, yes, it's a part of a long-term trend, ease of access, lower fees and lower costs, those sorts of things, but there's also a cyclical aspect to this and I think at some point that cycle will swing back the other way and active management will come back into favorite for a while.
Freeman: And lastly, property is also always in the mix for SMSF trustees. You said around a year ago that you're favoring commercial property over residential. Is this still your view?
Oliver: My view on property hasn't changed. A year ago, I favored commercial property over residential because I thought commercial offered high yields, that's the basic – or the rental yield you get or the income flow you get from that investment, high yield compared residential property. And the main reason there was because residential property prices have been pushed through the roof in Sydney and Melbourne. And so, if always the prices have gone up, rents haven't kept pace and the rental yields have gone down. Whereas commercial property, values have gone up but nowhere near as much and that's left the rental yields looking relatively more attractive. And that remains the case. So, I'd still favor commercial over residential.
But of course, there's pockets of the residential market. I was probably a bit too early a year ago saying that commercial was the place to be. Residential, if you invested in Sydney and Melbourne would have still outperformed commercial, although commercial has done pretty well over the last 12 months. But I do worry that the Sydney and Melbourne property markets have become a bit too hot that I know – we've been saying this for many years now, but sooner or later, particularly with the Sydney property market up 70 per cent-odd over the last five years, the Melbourne market up nearly 60 per cent over the last five years, sooner or later there will be a cooling down of those markets and the money will flood somewhere else.
Freeman: Thanks very much for your time today, Shane.
Oliver: My pleasure. Thank you.
Freeman: I'm Glenn Freeman for Morningstar. Thanks for watching.
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. Self-managed super is not Do-it-yourself Glenn Freeman 03/07/2017 http://video.morningstar.com/aus/video/170630_Ashenden_BT_AUDIO.mp4
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.
16/06/2017 As retirement approaches, even the best-laid plans can go awry, as Tim Steffen tells Christine Benz, Morningstar US. How to guard against retirement threats Christine Benz 16/06/2017 http://video.morningstar.com/aus/video/
Transcript to be available shortly./video/transcript/2717 mailto: ?subject=How to guard against retirement threats&body=http://www.morningstar.com.au/video/story/2717 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. No place for set-and-forget asset allocation Glenn Freeman 04/10/2016 http://video.morningstar.com/aus/video/160410_Shane_Oliver_AMP_AUDIO.mp4
Glenn Freeman: I'm Glenn Freeman for Morningstar and I'm joined today by Shane Oliver, Chief Economist and Head of Investment Strategy for AMP Capital.
Shane, thanks for joining us.
Dr. Shane Oliver: My pleasure. Glad to be here.
Freeman: Shane, what's your assessment of Australian-listed companies' performance given that fiscal 2016 has now ended?
Oliver: Overall, I thought the reporting season was okay. I mean, it wasn't going to be a great year because, don't forget, resources companies have been hit by a massive blow from the fall in commodity prices.
So that really dragged down the resources part of the market and of course, that flowed on to the rest of the market. So, overall, profits were down about 8 per cent. But just bear in mind, there was a 47 per cent-odd slump in resources sector profit, so that's what really dragged things down.
But if you sort of look in the details, they weren't too bad. You can see the median company actually saw a profit growth of around 4 or 5 per cent. 62 per cent of companies actually saw their profits rise from a year ago.
And…over 50 per cent of companies, when they reported their results, actually saw their share price outperform the market on the day of release. In other words, the market took the results reasonably well.
And I think the other thing is that this has sort of set a base for a bounce back in profits as we go through the current financial year.
So, I think that's the really important thing from this. There wasn't a lot of disappointment. And if anything, there was a slight upgrade to earnings, particularly for resources stocks and as they go from being a big negative to being a positive that should drag overall profit growth of listed companies over the next 12 months up to around 8 per cent after the falls of the last year.
Freeman: And were any of these sector results particularly surprising for you?
Oliver: There were a couple of sector results that did surprise me. The resources perhaps were one of them. We had been used to resources companies surprising on the downside, but you saw a few key companies there actually surprise on the upside and that's why you saw upgrades to earnings expectation for the resources sector.
BHP, Rio, Fortescue even, results there I thought were a lot better than feed and probably better than I was expecting.
The other area of surprise was what's often called discretionary retail. These are retail companies focused on discretionary spending items as opposed to consumer staples like supermarkets.
And the discretionary retailer saw pretty good results and a part of that was driven by a great company JB Hi-Fi doing well, continuing to do well, but part of it generally, I think, was consumer spending coming back.
We have seen reasonable growth in consumer spending over the last 12 months, albeit still a very competitive environment, lots of weakness in terms of pricing power. But in terms of volumes, those seem to be coming through and that's helping retailers.
Freeman: Now, Shane, especially in the SMSF sector, we hear a lot about an over-allocation to Australian shares. Is this something that you see as a problem?
Oliver: Well, there are positives and minuses with an allocation to Australian shares. I think the reality is that Australian shares do provide a good cash flow and you get the franking credits.
So, you're always going to buy. So, if you've got your investment portfolio and you're an Australian-based investor and you get access to those franking credits, you're going to have a bias towards Australian shares.
The trouble is I think that some SMSF investors do attack a little too far and you end up with a situation of having too many of your eggs in just one basket. And if we go through a period like the last five or six years where Australian shares underperformed, say, global shares then that can actually be a negative for your wealth. Even though you get an income flow, you're not getting the capital growth that global shares offer you.
So, I think, yeah, there is a bit of a problem there, that I wouldn't go the full hog and say, well, I only have 1 per cent or 2 per cent in Australian shares, like if you're a Martian, that's probably all you'd have in Australian shares.
So, I still have a decent bias towards Australian shares, but look, I think it would make sense for investors to have a bit more internationally given the sectoral exposure you get internationally, particularly IT stocks, consumer stocks and so on that you don't have in Australian, the growth potential globally and also the diversification benefits.
You often find that when Australian shares were underperforming global shares were doing better and that helps protect your portfolio. And likewise, when you go global depending on how you do it, you get exposure to foreign currency. And just as the Aussie dollar is going down over the last few years, foreign currency is going up in value and that also helps your portfolio.
Freeman: Now, just further to that last question. Do you believe that Australian SMSF investors are active enough in their asset allocation approaches?
Oliver: So, on one hand, you can say that the old set-and-forget approach that we had through the '80s and the '90s where you could just put some money down as an investment and most things did pretty well through that period, apart from occasional setbacks, because we saw a very favourable environment economically and also financially. The tide was rising. All boats were being pulled up. You didn't have to put a lot of effort into trying to get the cycle right.
Now, we're going through an environment which is a lot more constrained, a lot more volatile and therefore, there is a case to employ a more active approach to asset allocation. The problem is for individual investors, it's very hard to get that right because you're bombarded with information.
There's multiples of information flowing at these days that wasn't around in the '80s or in the '90s and that can be very confusing and can throw investors off.
So, I think they have a choice here. Either you adopt the set-and-forget approach, but you've got to bear in mind you're going to hit more volatility and lower returns than you got in the past; or you go down the path of saying 'I'm going to do this myself but I'm going to put the effort in'.
'I am going to make sure I get the right information flows and I get a process to help me through that,' and you've got to be aware here, you do have to put a lot effort in, or alternatively, you invest in vehicles that might help you do that, funds which do a bit of asset allocation as part of that process.
Freeman: And just lastly, you've spoken about the likelihood of a residential property slowdown in our capital cities. Should SMSF trustees rebalance their portfolios away from direct property?
Oliver: I think now is not the time to be heavily investing in or exposed to residential property, but it depends on which city you're in. I think the reality is, in Sydney and Melbourne we're seeing fantastic gains over the last four years, 40 per cent, 50 per cent gains in Sydney, a little bit less in Melbourne.
So that's going to come to an end. The cycle doesn't keep going up forever. Sooner or later you're going to get a bit of a downswing. And you're not getting a lot of rental growth through. Rental yields on average are pushing down below 3%. So, that's not a positive either.
And in the meantime, you've got this massive construction cycle. You look over the horizon in Sydney and Melbourne and to a lesser degree, Brisbane and Perth, you see cranes all over the place and that's going to put downwards pressure on apartment prices over the next few years.
So, I'd be a bit cautious about the residential property markets, particularly in Sydney and Melbourne. I'd focus more if I was intent on having an investment property in those cities, I'd focus on areas where you don't have lots of cranes, so you don't have a lot of supply really.
But you've got to really do your homework now. It's not as easy as it was, say, four years ago. And I'd probably be looking – if I was going to allocate more money, I've been looking at cities which have been underperforming in recent years.
I'd prefer Brisbane over Sydney, for example, because Brisbane has been lagging. At some point in time, you might say, well, let's allocate some money to Perth or Darwin which have been seeing price falls. So, value is starting to emerge there. I think it's got a little bit further to go though, so I won't rush in right now, but over the next couple of years, worth looking at.
But I think the property asset class which is probably a better bet at the moment is commercial property.
Commercial property has been doing well, but it's been lagging what you've been seeing in, say, Sydney and Melbourne and it doesn't have the potential oversupply problems.
And by commercial I mean office, retail, industrial sort of properties. So, I think if I was an SMSF investor, I'd be focusing on commercial and I'd be focusing on cities which haven't had the huge gains and where there isn't a big supply if you are going down the residential property path.
Freeman: Shane, thanks very much for your time.
Oliver: It's been my pleasure. Great to be here.
Freeman: I'm Glenn Freeman for Morningstar. Thanks for watching.
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. Helping SMSF trustees negotiate super complexities Glenn Freeman 19/08/2016 http://video.morningstar.com/aus/video/160817_Hogan_SMSF_AUDIO.mp4 Glenn Freeman: I'm Glenn Freeman for Morningstar and I'm joined today by Peter Hogan, Head of Technical with the SMSF Association.
Peter, thanks for joining us.
Peter Hogan: Pleasure. Thank you.
Freeman: We've obviously heard a lot about the government's proposed changes to super contribution caps. Would these changes affect SMSF trustees a lot more than other super fund members?
Hogan: In itself, it shouldn't necessarily impact upon self-managed super fund trustees any more than other members or funds, in the sense that the rules apply to everyone clearly.
Perhaps it may have more of an impact upon members of self-managed super funds in that they often are people who have more money to contribute to superannuation, and perhaps they have for that reason been a little bit more vocal when the government has restricted the level of contribution that can be made to superannuation because they're perhaps more likely to make larger contributions. And that's a real generalisation. Clearly, that's not 100% of the case. It's not a case across the board.
But certainly, if you look at, for example, average account balances of members of self-managed super funds who are also trustees of their funds, they are much larger than many of the other alternative superannuation arrangements out there. That's clearly not just investment return, that's also the ability to put additional amounts of money into superannuation as well.
So, in that sense, yes, advisers of trustees of self-managed super funds are often talking and emphasising the limitations as they change, particularly when they are reduced as the government currently proposes to do from July 1, 2017.
We also feel that perhaps the reduction, particularly for the over 50s is something that might influence or have an impact upon self-managed super fund members and trustees perhaps a little more. But again, we feel that across the board many people in their 50s and early 60s, when they get closer to retirement, have a greater ability to contribute regardless of the superannuation arrangements they have.
And really, while one can understand from a budgetary perspective perhaps why the government is looking to save some costs at the budget level, that we feel that perhaps targeting the over 50s and reducing the amount of money that they can put into superannuation is a limiting factor.
Having said that, of course one of the other proposals the government has put forward is these catchup contributions to people who have less than $0.5 million inside their superannuation fund and that is the majority of people with superannuation arrangements by far. And we see that as a great positive step and perhaps it counteracts to some extent that over 50s reduction in the annual contribution as well.
So, to the extent to which people can take advantage of those combination of changes in rules appropriately, it all comes down to getting the right advice and that's what we certainly encourage trustees and members of self-managed super funds to do.
Freeman: And just leaving aside budget 2016, what in your view is the most complex part of being an SMSF trustee?
Hogan: It is very much a case for trustees of getting a good understanding of what the rules are and what they can and can't do with the assets of the superannuation fund because clearly unlike any other superannuation arrangements a member of the self-managed super fund is also a trustee of their fund and with that comes responsibilities as trustee to manage that fund appropriately.
And it's perhaps having a full understanding of what those responsibilities entail which can cause problems for trustees of self-managed superannuation funds, if they don't seek the right sort of advice.
And in fact...I spoke earlier about increasing or hoping to increase the knowledge of trustees of super funds as our first protocol, actually emphasising what those trustee obligations are going forward and trying to make sure that there is plenty of material out there available and accessible to them for them to help them understand exactly what those responsibilities are and therefore, the implications of what that means for them when they are looking at administering and operating their self-managed superannuation fund. Clearly, very, very important as we see as an association.
Freeman: Now, Peter, do you believe that there is a lack of diversification in SMSF portfolios?
Hogan: Listen, on face value self-managed super funds can look like they are really investing in a very limited number of asset classes, it's true. I guess what the research has shown, and we recently undertook a review of about 65,000 self-managed superannuation funds really with Accurium, an actuarial firm, and we looked at those funds who were approaching or which were in pension phase, at least one member was in pension or drawdown phase, and looked to see where they invested their money and whether the fact that they are in retirement phase as such, whether that changed the way they invested their money or not and what their returns were.
And the interesting thing was that the median return, not the average return, but the median return which we felt perhaps better reflected the return of the fund, was still about 4.2 per cent for the 2015 year. The average return was a little higher than that, but that skewed of course because we have much larger funds as well as smaller funds. So, we felt the median return gave a better reflection of the true return of the average self-managed superannuation fund with the $1 million to $1.2 million fund balance.
And so, that's not a bad return ,even though these people are in pension phase, even though they perhaps tend to hold a bit more cash, they have the obligation to carry more cash to meet their pension liabilities as they fall due as well.
So, we thought that was indicative of a fairly well-rounded sort of investment return and some well-rounded investment decisions and what came out of a lot of that research was the flexibility that self-managed super fund trustees had to respond to changing economic conditions, personal fund member conditions.
There can be lots of reasons why trustees would choose to change their investments and we just saw with the self-managed super funds sector there was a great degree of, as I said, flexibility to move around between investments.
Having said that, there's two great opportunities to allow self-managed super fund trustees with the right sort of investment opportunities to diversify further, and I don't think anyone would argue that that's not a good thing.
Quite the opposite, I think that's a great thing personally and if we could move to other areas that have traditionally been difficult for self-managed super fund trustees to invest in because perhaps you needed to be a wholesale investor with anywhere from $0.5 million to $5 million as an entry investment into certain wholesale investments, it's not, clearly, in the realm of an individual self-managed superannuation fund.
Corporate bonds, there are whole number of different products and investment opportunities out there which are difficult for self-managed super fund trustees to invest in at the moment. It would be interesting to see how [ASX] mFunds go, given the managed funds have traditionally not been a popular investment with trustees.
But the fact that they now will be able to trade them on the ASX may change the view of those investments, and the investment behavior in relation to those investments. They're very new, we'll have to see how that goes. But those sort of innovations and initiatives, I think, are areas that will, I think, over time change the way self-managed super fund trustees invest their money.
Freeman: Peter, thank you very much for joining us.
Hogan: Pleasure. It's great to talk to you. Thank you.
Freeman: I'm Glenn Freeman for Morningstar. Thanks for watching./video/transcript/2636 mailto: ?subject=Helping SMSF trustees negotiate super complexities&body=http://www.morningstar.com.au/video/story/2636 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. Safe withdrawal rates for retirees Nicholas Grove 02/02/2016 http://video.morningstar.com/aus/video/160201_Serhan_Withdrawalrates_AUDIO.mp4
Nicholas Grove: I'm Nick Grove from Morningstar and today I'm joined by managing director of research strategy, Anthony Serhan, who in a recent paper suggested that Australian retirees should perhaps rethink their withdrawal rates. Anthony thanks for joining us.
Anthony Serhan: Great to be here.
Grove: First off Anthony, what is this 4 per cent rule we hear so much about and where did this come from?
Serhan: It's great starting point. It's where we really started with this. And you have to go back 22 years. It came from an article put into the Journal of Financial Planning in the US by William Bengen, who really wanted to solve this question of, "Geez, I've got all these clients retiring--he was a financial planner--How much can they actually draw down?" So that's where it started. But I think as with anything and we love things that can be simple, don't we-- 4 per cent sounds good? What we miss out on is some of the detail about where that rule came from.
So first of all it was a US study. So it was looking at US returns--stocks 50 per cent, bonds 50 per cent, that sort of a portfolio--it was historic data they were using and there are two other really important points: one, the 4 per cent is only used once. You use that to determine what you can spend in the first year of retirement then that dollar amount is indexed to inflation. So that's the first thing to understand, and secondly, when he was doing this he really was focusing on this idea of a safe withdrawal rate. So he was saying this 4 per cent number is really the minimum you can look at over a 30-year period assuming markets perform at some of their worst. So he is really locking in on that certainty idea.
Grove: This 4 per cent rule that he came up with, given the way markets are today and given that we are in a completely different country, does this 4 per cent rule still have any sort of application for Aussie retirees?
Serhan: I think there were a number of things we wanted to do when we looked at this work and try to do in an Australian context. The first thing was to address one of the practicalities of life and that is there are fees. Now whether you are paying somebody to manage your portfolio, whether you are paying an accountant, whether you are paying somebody to administer the portfolio, there are costs. So what we did first of all was introduce a fee of 1 per cent per annum into our analysis. And secondly, we looked at the Australian returns as opposed to US returns. So if you do a similar thing: Assume a 30-year period, 50 per cent Australian shares/50 per cent Australian bond rates with the fee level, the 4 per cent number drops to around 2.5 per cent.
But if you want to take that a step further, which is what we did and say more realistically let's think about projected returns or what are returns likely to be taking into account where equity markets are today, where interest rates are today, and also a more diversified portfolio, it's still 50 per cent equities but you've got a mix of Australian and international assets in there. When you do that, if you still want to be 99 per cent certain that withdrawal rate number comes out at around 2.9 per cent and if you are prepared to say lower how certain you want to be to around 8 per cent, the number comes up to 3.9 per cent. So you still get that range there, so look in an Australian context there are some definite things you've got to allow for.
Grove: In your paper Anthony you talk about this concept of probability of success or the success rate. Can you just elaborate on this a bit?
Serhan: I think it's really important and it's a really important concept for people to get around. I guess one of the things everybody maybe felt a little bit let down about during the financial crisis was this idea that, hang on we always talk about what average annual returns are going to be, you didn't tell me you can get something like this. And probability of success is one way of starting to think about a range of returns. You think about it: We say over the next 20 years we expect equity markets to do say whatever it is 6 per cent or x per cent per annum. If you are saying, okay, I'm prepared to work with that, what you are saying is you are a pretty optimistic person. Because the reality is with any expected return it will come true in 50 per cent or you will get that in 50 per cent of the circumstances. So you are saying that those 50 per cent are probably going to be some of the more favorable conditions. The reality is you can look at that range and you can play with different certainty levels. You say look maybe I'm happy at 50 per cent or maybe I'm happy at 99 per cent--I want to be dead certain that whatever I'm putting into here is going to come out. Well the reality is somewhere in between. That's what this paper does--it shows you a range of successful probability and success levels.
Grove: Just finally Anthony, given the findings from the paper what do you think is the best course of action at the moment for Australian retirees?
Serhan: I think there are a few key lessons there. First of all look, equity markets I think are still going to provide reasonable returns against cash over the next 20, 30 years but in our numbers those projected returns are probably two percentage points lower from what they have been historically. So, get used to this idea that returns are going to be lower. You have some choices, you can spend less, you can save more or you can satisfy yourself with a lower level of probability.
Our safe withdrawal rates, they are similar to what we've seen in the past but they are lower and importantly these withdrawal rates will be even lower if as the data shows us that people keep living longer. That's good news, isn't it? We are going to live longer. Well, maybe you've got to take that into account when you are thinking about how much you are spending today. Also the other thing we noticed was the safe withdrawal rates we were coming at with are lower than the minimum required withdrawal rates from an allocated pension. So a few things for people out there living off their allocated pension--if they want more certainty about their money lasting their lives you may need to save money outside of the allocated pension, or more importantly, you may need to put aside some of your annual payments from your allocated pension to another investment that's going to be there and something you can draw upon.
The other great thing out of this study, once again it shows the benefits of diversification. So a good balanced portfolio--make sure you have it. But the other thing that strikes you is, well, while simple rules are great, the reality is we are all different and we need to look at this stuff one by one and reviewing this taking into account your own requirements, your own preferences is still going to be the best way of working your way through retirement.
Grove: Of course. Anthony thanks very much for your time today.
Serhan: Thank you.
Grove: I'm Nick Grove from Morningstar. Thanks for watching./video/transcript/2578 mailto: ?subject=Safe withdrawal rates for retirees&body=http://www.morningstar.com.au/video/story/2578 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. Pitfalls of investing for retirement Jess Chapman 30/09/2015 http://video.morningstar.com/aus/video/
Jess Chapman: For Morningstar.ca, I'm Jess Chapman. It's said that no battle plan survives first contact with the enemy. The same is true when your retirement plan is faced with contact from a few major pitfalls. I'm joined by Morningstar's director of personal finance, Christine Benz.
Christine, in retirement, especially, timing is everything, and timing your retirement plan too late is a very unfortunate circumstance.
Christine Benz: It is, and unfortunately this is the most common pitfall that we see, where people don't get serious about retirement planning until they are, say, in their 50s and they want to retire in 10 or 15 years. The problem is by starting too late, you don't have that many levers left to fix that plan. So even if you are able to make very generous contributions going forward, even if you make some heroic assumptions about what the market might return over your time horizon to retirement, it may be difficult to make the numbers add up. And the only lever you have at that point is to push retirement further out into the future which, unfortunately, is really the only solution for many folks who start too late. All they can do is keep working for the foreseeable future, because the math of retirement to the date that they'd like to hang it up just doesn't come together.
Chapman: And I think another major pitfall that comes with that is a too-aggressive asset allocation, because now your time is constrained, you want to raise as much money as quickly as you can, but it doesn't always work out that way.
Benz: That's the problem. I think many people who are starting late for retirement do kind of want to put the pedal to the metal. They want to invest in the asset class with the highest potential return, that tends to be stocks, over long periods of time, but you do need to have a sufficiently long time horizon to have stocks work for your benefit. So this is something that we see with late start investors. But we really see it with investors of all stripes, where they started out in stocks. They had a very good experience, investing in stocks, and so they don't start taking some money off the table as retirement draws close.
So they haven't steered progressively larger sums to bonds and cash as retirement gets near. That means that their portfolio, as retirement gets close, is way too risky given their time horizon. I would point out, though, that even people who are closing in on retirement and retirees do need to have stocks as part of their portfolio. They need that return potential. Company stocks, bonds and cash at this juncture in particular are barely going to keep up with inflation going forward. So you do need that return potential.
Chapman: As with any portfolio, diversification is the investors' best friend, but some retirees often don't remember that, do they?
Benz: They don't, and in some cases employers don't remember that, and they encourage their employees to invest in company stock. We've all seen horror stories where employees have stuffed a lot of their retirement plans into their employer stock. I had a conversation with our colleague David Blanchett, who heads up retirement research for Morningstar Investment Management. I was asking him about the optimal level of company stock in an individual's retirement plan. He said zero, from a portfolio optimization standpoint, that you have so much of your own personal wherewithal staked with your employer that you don't want to have your financial capital staked with that employer as well.
Chapman: That makes a lot of sense. Now, let's say the retiree's assets are all in order. They have the money, but they don't know what to do with it.
Benz: That's right. So a big retirement pitfall is not having a clearly articulated withdrawal strategy. Once you get close to retirement it is intimidating to start thinking about pulling out of that portfolio that you spent such a long time building. But it's important to have a clearly articulated withdrawal strategy. So think about what is the sustainable withdrawal rate, given my time horizon in retirement, given my asset allocation, as well as how from a logistical standpoint I'll go about withdrawing money from this portfolio. So will I use a strictly income centric strategy and rely on bonds and dividend paying stocks and other securities that spin off income? Will I potentially tap my highly appreciated winner? So will I use a more total return oriented approach? It's really important to understand what specific strategy you are using for getting money out of that portfolio that you worked so hard to build up.
Chapman: Absolutely. Christine, thanks for taking us through this.
Benz: Thank you, Jess.
Chapman: Visit Morningstar.ca for your investment news and updates.
02/09/2015 Despite the market swings, retirees can control stuff like checking cash reserves and spending levels. 4 retiree to-dos in a turbulent market Christine St Anne 02/09/2015 http://video.morningstar.com/aus/video/150902_Simon_Westpac_AUDIO.mp4
1. Check your liquidity
David Simon: Liquid reserves can be cash or even potentially fixed interest and it's always been a fundamental principle of investing, especially for retirees and even though the market volatility at the moment is certainly heightened, it's a discipline that should occur right throughout a retiree's investment strategy.
There are a few reasons why and they are strikingly clear. The first one would be ensuring they have enough income in cash for at least a couple of years. And the reason for that is that retirees don't want to be in a position where are selling shares or property or any other growth assets in a market which is falling and they don't want to be forced to do that. So, having at least a couple of years' worth of cash in reserve is really important to avoid them having to sell these assets whilst they are distressed. Potentially also having a further three years' worth of fixed assets would be completely ideal. That way an investor that's retired has at least five years' worth of liquid reserves to ensure they can ride out the volatility whilst the markets are going through their cycle.
The other reasons why investors should have a range of cash or liquid assets is also to take advantage of these opportunities. I mean, if they are fully invested then they are almost spectators in these environments and almost forced to sell assets whilst they're distressed. So, having an element of reserves and liquidity is also important to take advantage of opportunities and not just ensuring a provision of income.
Other advantages of having cash is ensuring they have a lump sum that they can access in the event of these unforeseen expenses which are traditionally and typically medically related or even related to their home. And obviously, cash and fixed interest, which are these liquid type assets, they always form a very important part, a defensive component of a well-constructed and diversified portfolio.
2. Revisit your asset allocation
Asset rebalancing and portfolio rebalancing is an ongoing discipline which should always take place regardless of the current market conditions. So, this type of asset classes or any asset classes are always going to be moving and some move higher than others and ensuring that investors continue to have a regular rebalance and regular discipline of making sure their assets stay in line with their risk profile and really importantly, in line with their investment needs. So, investors should certainly be doing it now, but they should be doing it as a regular activity right throughout their investment timeline. It's a very, very important and fundamental investment philosophy.
3. Assess your spending
Retirees are in arguably the most important time of their life. It's a time where they have worked really hard to get to where they are and now that they are somewhat financially independent to really enjoy their lifestyle. So, you'd hate for them to start curtailing their expenses because they hadn't been really well-prepared for retirement. So, I think it's an important time for them to relook at their budget and potentially defer some of those large one-off expenses if they just haven't adequately prepared for it.
But also, there are some other strategies they could embrace. I mean, potentially if their assets have fallen, they could potentially have fallen beneath the asset test for Centrelink purposes or even fallen below what the most recent test that Centrelink had done and that could potentially create further income by an increased age pension. But I think investors should be very careful about overreacting. Certainly, in my experience I've seen a lot of clients that feel particularly nervous, but then when we look at the planning, we actually look at the facts and figures, they are comfortably able to navigate through the current turmoil and still live well within their means and comfortably at the same time.
So, again, I think it's really important to strip the emotion out, sit with a professional advisor, look at the numbers, look at the makeup of the portfolio and really address it in that professional sense, you'll certainly find that investors that do take the time initially to do that they will feel much, much more confident and enjoy their retirement as they thoroughly deserve.
4. Remain vigilant
I think being vigilant is really important. I think making sure their asset allocation or the way their investments are invested is in line with their profile and their appetite to risk. You're going to find some investors that are really aggressive are actually going to look at this environment and be really positive about it and use this as an opportunity potentially to buy whilst it's cheap. You have some investors that are particularly patient and they are almost expecting it, so they are going to ride it through. But you're going to get some investors that are nervous and indeed some which are going to panic and I think it's the latter two which is really important that they quality advice and sit down and really follow the steps to ensure that they build their confidence, improve their education of what's happening and potentially take advantage of the current market.
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. 3 key risks for retirees Nicholas Grove 24/06/2015 http://video.morningstar.com/aus/video/150327_dunn_audio.mp4
Nicholas Grove: I'm Nick Grove at the Morningstar SMSF Strategy Day in Sydney for 2015 and I'm joined by Melanie Dunn. Melanie, what's the most important thing trustees should remember as they make the move from the accumulation to the retirement phase?
Melanie Dunn: Sure. I think there are three key risks retirees should be aware of. There is inflation risk, so the changes in the level of prices going forward in the economy; investment risk, so the range of outcomes they might experience across their investment returns and the timing of those returns; and of course, there is longevity risk, so the range of their lifespans and how long they're living.
Grove: And just secondly, Melanie, can the age pension make a valuable contribution to people's retirement?
Dunn: Absolutely. The age pension can be a valuable source of income in retirement -- even for wealthy households. As the household ages and use up their capital, they may become eligible for a part age pension. And if you think about it, the income you're getting from the age pension means you're drawing less income from your own assets, meaning your assets will last longer.
Grove: Melanie, in your presentation, you spoke about the idea of stochastic modeling. Can you just briefly talk us through what this means?
Dunn: Sure. So, stochastic modeling involves looking at the range of outcomes you might experience. Instead of using fixed assumptions, it often involves running a household situation through potentially thousands of simulations of what investment markets might do and what their lifespans might be. So, we can build a picture of the range of outcomes they might experience. So, we can answer questions about the likelihood of them achieving their retirement objectives.
Grove: Melanie thanks for your time today.
Dunn: No worries, thank you.
Grove: I'm Nick Grove at the Morningstar SMSF Conference in 2015./video/transcript/2506 mailto: ?subject=3 key risks for retirees&body=http://www.morningstar.com.au/video/story/2506 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. Top global tech opportunities Nicholas Grove 30/04/2015 http://video.morningstar.com/aus/video/150327_neilson_audio.mp4
Nicholas Grove: I'm Nick Grove with the Morningstar SMSF Conference for 2015 and I am joined by renowned global investor Kerr Neilson. Kerr, what is the Platinum International Fund investing in at the moment in terms of regions and sectors, just briefly?
Kerr Neilson: The big thrust we've had is towards Asia. So we're now about 45 per cent in Asia, so that's the whole of Asia including Japan. Japan is about 9 per cent, the rest is China and India. Those are our big exposures and it's all about reform. So these parts of the world are changing dramatically and we think they are completely underrepresented in global markets.
Grove: Just secondly Kerr, you spoke in your presentation about opportunities in the global tech sector. Where are you seeing those kinds of opportunities?
Neilson: We're trying to approach it in two ways: one is to own the traditional tech companies, which everyone has lost interest in and they are selling at less than the market average. Things like Cisco and what have you, and there are transient issues there that are worrying people and we think they are wrong.
And then, we're also playing a hard game in these Internet plays. So, we've played things like LinkedIn and we've sold that. It's a much harder game because valuations are high, but equally the opportunities now are global. So, we've not seen companies that can scale up within a year from being provincial to being the whole world and that's what exciting about them, but they are not easy to assess. There are always competitive changes there, and so the competitors' response is a hard thing to read because you can't fall back on history. You've got to look at what's there now.
Grove: Just finally Kerr, what's the most important thing that Australian investors should keep in the front of their minds when it comes to international investing?
Neilson: The value of the Aussie and we think it's still very high. So most people look at the Australian dollar in terms of the bilateral rate with the US, but if you look at the deterioration in our terms of trade, the trade-weighted Aussie is down only about 16 per cent, 18 per cent max. It should be a lot cheaper than it is. So, I think they should have a lot of thought about having more money offshore. Typically, self-managed super is about 8 per cent offshore. We can't see why it shouldn't be 40 per cent offshore.
Grove: Kerr, thanks very much for your time today.
Neilson: Thanks very much.
Grove: I'm Nick Grove with the Morningstar SMSF Conference in 2015./video/transcript/2485 mailto: ?subject=Top global tech opportunities&body=http://www.morningstar.com.au/video/story/2485 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". Key takeaways from the Murray inquiry, SuperStream Nicholas Grove 23/04/2015 http://video.morningstar.com/aus/video/150327_colley_audio.mp4
Nicholas Grove: I'm Nick Grove at the Morningstar SMSF Strategy Day in Sydney for 2015 and I'm joined by Graeme Colley. Graeme, what's the most important thing trustees should take away from the Murray inquiry?
Graeme Colley: Well, Nick, I think there are a couple of things. Firstly, the Murray inquiry has confirmed that self-managed superannuation funds have really got a place in the superannuation industry. They've got some questions over limited recourse borrowing arrangements and they are looking sort of going forward, at pensions, but not in the self-managed funds -- in the biggest superannuation funds.
Grove: Graeme, in your presentation, you mentioned a case that wound up in the Melbourne Magistrates' Court, which you referred to as the "gardening leave" case. Can you just briefly explain what happened there and what trustees should take away from that?
Colley: Well, what trustees should take away from it is that you make sure you lodge your superannuation fund returns and make sure you don't muck with your superannuation fund because this person, for the first time in Australia's history, got 80 hours community service for not lodging their tax return and, in addition, they took all the money out of their superannuation fund and put it towards a business that failed and the magistrate wasn't impressed by that.
Grove: And just finally, Graeme, can you just discuss a few of the implications that trustees should take away from the SuperStream package?
Colley: With SuperStream, it is about employers making contributions to your self-managed superannuation fund. So it doesn't matter whether you've got a large employer, which is more than 20 employees or a small employer, then that employer is going to have to comply with SuperStream. And that means that they're going to have to have your ABN for your superannuation fund, bank account details and what we call a provider number. Now you can get the provider number and have a look at the ATO website and from that provider number the employer can then put the contributions into the fund without too much trouble.
Grove: Graeme, thanks for your time today.
Colley: Thanks, Nick.
Grove: I'm Nick Grove with the Morningstar SMSF Strategy Day in Sydney in 2015./video/transcript/2480 mailto: ?subject=Key takeaways from the Murray inquiry, SuperStream&body=http://www.morningstar.com.au/video/story/2480 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. Revisiting the sole purpose test Christine St Anne 19/03/2015 http://video.morningstar.com/aus/video/150303_sole_audio.mp4
Christine St Anne: Today, I'm joined by BT Financial Group's Bryan Ashenden to talk to us about the sole purpose test. Bryan, lovely to see you again.
Bryan Ashenden: You too, Christine.
St Anne: Bryan, with the sole purpose test, it's pretty clear, isn't it, in terms of the definition?
Ashenden: Yeah. Look, the sole purpose test itself is something that applies to all superannuation funds and what it broadly sets out is, the whole purpose for which a superannuation fund needs to exist. And really it comes down to one of two core purposes and you have to abide by one those two. So, one is basically to be able to provide benefits to a member upon their retirement or attaining age 65 or if they were to pass away before that age, to be able to provide death benefits through their dependents.
St Anne: Now the sole purpose test applies to all super funds, large and small, but how is it different with SMSFs?
Ashenden: As we say – so, you are right. It is same test for all superannuation funds. The issue with self-managed super fund really comes back to that complexity that you have because the people who are the trustees, and it's the trustees that sole purpose test applies to, but the trustees are also the members of the fund. So, you are talking about the same person and you might think one thing when you are a trustee, but thinking about something different as a member, but because you are the same person the test always applies and this is what's probably a little bit more complicated. You've got to think about it in the context of am I making the right decision for the fund as opposed to am I making the right decision for me as a member of the fund and that's where that complexity really comes in.
St Anne: In terms of that sort of complexity, Bryan, what are the common breaches?
Ashenden: The major common breach that probably arises are things like, I've got a property inside the fund and I want to go and live in it. So that clearly breaches things like the sole purpose test. It's like you can't do that because you're getting a benefit from the fund today as opposed to is to provide the benefit in retirement or upon death. So that's probably one of those clear examples. It might about the timing of the benefit and where it comes through.
St Anne: What about some of the subtle breaches that can catch trustees?
Ashenden: Yeah. It's really important to be aware of these ones. When you talk about the sole purpose test and we're saying it's for retirement purposes or to pay death benefits, there are a whole range of other little add on or any ancillary benefits they call, which is okay, and that covers things like holding insurance through the fund. But when you look at a sole purpose test, what it does is it applies to every decision that you make and really what was the rationale behind that decision. So it's not just about investments, it's also about when I am deciding to pay out a benefit to a member, all of those sorts of things.
But particularly when you come back to benefits, it will be things like I've decided to invest into particular shares and as a result of investing into those shares I am entitled to discounts on products provided by that company. Now, if you take that and you use that discount as a member because your fund owns those shares, that's actually in breach of the sole purpose test. So, that's sort of things you go, well, I'm entitled to, therefore I can, but that's a benefit again that you get today as opposed to a benefit for retirement.
The other one that has often been talked about in this space is that the fund owns a golf club membership, and that's fine because it might be an exclusive golf club and it becomes quite valuable over time, you just can't go and play golf there using that membership because again it's a benefit today as opposed to a benefit into the future.
St Anne: Well, thank you so much Bryan for your insight, in particular, telling us how to avoid those traps. Thank you.
Ashenden: All right. Thanks Christine.
-- SMSF Association's Andrea Slattery talks about the growing professionalism of the industry and what it means for trustees. Trustees under the spotlight Christine St Anne -- http://video.morningstar.com/aus/video/150301_smsf_audio.mp4 Christine St Anne: We're at the SMSF Association's Annual Conference and today I'm joined by Andrea Slattery to give us her broad views on the industry. Andrea, lovely to see you again.
Andrea Slattery: Thank you very much for having me here.
St Anne: Now, Andrea, a lot of our trustees already know your association as SPAA, but you recently rebranded. Can you give us a reason about what is actually in the new name?
Slattery: Well, in effect it's about simplicity and intuitively being able to find an association that can actually service the community of the SMSFs. When we started our organization 12 years ago, it was about building professionalism, integrity and sustainability in the SMSF sector, and when we went out to do some research, the general community that weren't members or trustees within the communities. So it sounds like an association with the wrong name. They thought of hot tubs, and they said why don't you just drop the name and you talk about the SMSF Association, which is what you are.
So, we thought about that and intuitively we felt that it was right. We're also at the right time in the stage of a life cycle. We have created an SMSF profession. There is a genuine wellbeing about the SMSF sector and there have been three major reviews in Australia, government reviews sort of confirm the SMSF sector was well-managed, it's well functioning, it's had a clean bill of (hills) and that they have confirmed this a new profession. So, it was time.
St Anne: Now we've got SMSF association.
Slattery: SMSF Association.
St Anne: Now Andrea, what I found interesting in your presentation was how the conference seems taking the focus on the trustee pretty much on the center. So as of the newly rebranded association, how does the trustee come under spotlight? Will you be doing more to focus on the trustee?
Slattery: Yes. We started the association looking at the integrity of the industry, which meant that we have a number of communities that we actually had under our care. So as members, you had the professionals. You had the educators and the trustees and other community, such as the regulators and maybe they're in all sorts of other areas, the administrators that actually impact on the SMSF sector.
This year for the first time though we decided rather than having our conference, which focused on an individual issue within a profession, say like a borrowing rule or about a tax rule, or about something that an accountant would do, we thought it was high time that we actually had something that would allow a person providing services through the trustee to be able to understand where they were in their life cycle and it's really imperative that it didn't matter what level of knowledge, but they could actually provide advice for an individual in their life cycle and that they could actually provide services along the journey and that would change along the journey, and this conference is to help everybody have a new framework of advice for them.
St Anne: Now, Andrea, the other interesting thing that we got from the conference is that you've started (sparring with your husband and into boxing). Now, of course, the government has made some noises or actually even the media has made some noises about targeting super concessions. So as an association, do you think you might need to put some sparring gloves on in order to look at some of these policies and whether they are viable with the government?
Slattery: Yes. I'd have to say that I will be putting that gloves on with this. Two things; and I need all of you to actually help us with it. The tax concessions I provided for people to put money away now for the future. There has to be an incentive for you to save for a period of one year to 50 years. It has to be measured. At the moment, the behavioral aspects of how people would spend their money, if they weren't getting a tax concession, is not well measured.
We know that it is better to have a super savings system and our research is showing, you are more likely to save if you have a tax concession and you contribute to super than you are if you are just were left without any compulsion.
The third part is the government makes the laws, the tax laws and the super laws. When they fiddle around with it, they affect the confidence of consumers, they affect the confidence of your clients and they affect the confidence of trustees. You have every right to actually bring your issues to the table and support super in keeping it's tax concessions as the primarily savings vehicle and having surety and certainty going forward, and so the government committing to this issue that they will not fiddle with it along the journey.
St Anne: Andrea, thank you so much for your time today.
Slattery: Pleasure, it's lovely being here, Christine.
St Anne: And apologies to all our viewers with the noise in the background, but we are at a live conference, and Andrea and I have to grab some time in pretty much the basement of the event. So, Andrea, thanks for your understanding.
Slattery: My pleasure, it's great. Enjoy your day.
St Anne: We will. Thank you all.
/video/transcript/2472 mailto: ?subject=Trustees under the spotlight&body=http://www.morningstar.com.au/video/story/2472 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. Taxing times for trustees? Christine St Anne 05/03/2015 http://video.morningstar.com/aus/video/150304_tax_audio.mp4
Christine St Anne: I'm at the SMSF Association's Annual Conference and this time I have managed to grab a quiet room, and today I'm joined by Graeme Colley to talk about some of the key legislative issues for trustees. Graeme, welcome.
Graeme Colley: Thank you, Christine.
St Anne: Now, Graeme, you had mentioned in your presentation some technical issues in particular the concession or contributions into superannuation and then the LRBAs. Can you give us a little bit of insight into those two initiatives?
Colley: With contributions we saw an increase last year around up to A$30,000 for people up to age 50 and then beyond age 50 it was A$35,000. We think that's a good thing, because people later in life probably need higher amounts to go into superannuation because of the adequacy there. So we're happy with that. We still don't think that's enough, but we continue to lobby the government in that regard.
Now with limited-recourse borrowing last year we saw the ATO issue some rulings, some determinations on certain non-commercial loans and they are trading those arrangements as being what we call non-arm's length income and they get taxed at 45 per cent rather than 15 per cent if you're in accumulation phase or zero if you're in pension phase. So, that's a pretty expensive exercise. We've also got legislation coming in fairly soon, which is going to look at what we call the look-through provisions about limited-recourse borrowing as well. So that will be interesting to see what that's got in.
St Anne: And the other topic that was brought up in the presentation was the recommendations in the Financial System Inquiry and specifically the tax white paper. Are there any issues of concern for trustees in that area?
Colley: Well we've seen a lot over the years on moving from accumulation to pension phase and that seems to be something that they'll certainly take into account, the taxing of the superannuation fund and we saw the Henry Review and what it had to say some years go. So we'll see what they come out with. I think they also mentioned franking credits and because we're quite unique in the world, actually unique in the world with a franking credit system that we've got. Then finally negative gearing and having a look at that. We think that was a good thing, because it seems to skew people's decisions away from superannuation where they really should be thinking about their retirement income.
St Anne: And there has been a lot of discussion of course about some of the generous concessions in superannuation and I know that the government has already – in the budget there won't be any changes, but do you expect any perhaps announcements to be made?
Colley: Not in the budget, there may be other announcements sort of relatively technical, but changes in the contribution levels, I think that they would leave that to the taxation white paper.
St Anne: Well, Graeme, thank you so much for your time today, and of course, we will be seeing you in a couple of weeks' time at our own conference in March. So thank you, Graham.
Colley: I look forward to this. Thank you, Christine.
St Anne: Thank you. Christine for Morningstar.
02/02/2015 A government inquiry and tax concessions are among the key issues confronting trustees. Key issues for SMSFs Christine St Anne 02/02/2015 http://video.morningstar.com/aus/video/150123_spaa_audio.mp4
Christine St Anne: Today I am joined by SMSF Professionals' Association of Australia's Andrea Slattery to talk to us about the big issues for 2015. Andrea, lovely to see you again.
Andrea Slattery: Thank you very much for having me here Christine today. It's a pleasure.
St Anne: Firstly Andrea we had the Financial Systems Inquiry this year, any issues that trustees need to be aware of.
Slattery: Well Christine it's been very interesting because the Financial Systems Inquiry actually brought down its major report just recently. And the SMSF trustees should take comfort that this is the third major review in Australia that's actually given a positive outcome towards the SMSF sector. So as SMSF trustees, I believe that they should be very, very pleased with the fact that there was very little in the Financial Services Inquiry that actually related specifically to the SMSF sector. It means that the review found that the SMSF sector wasn't one that actually needed to have a lot of tinkering or to have lot of legislative changes made to it.
So from an SMSF trustee point of view moving forward, one of the main issues that came out of it, was an investigation into non-concessional contributions, which are contributions made by Australians in their after-tax dollars. And that's where they put money away and they save it. So that's one of the areas that the FSI actually said that they would like to have a look at.
St Anne: And what other issues should trustees be aware of?
Slattery: Well, we at the Self-Managed Super Fund Professionals' Association are very, very keen to help the government and to continue to work with the Financial Services Inquiry and understand that the measurement of super tax concessions need to be revisited. So another major objective to come out of the – major recommendation to come out of the review was that the FSI recommitted to having a major objective of superannuation being for retirement incomes for Australians.
Now that was one of the major messages that we put forward as well. If that is recommitted to, than there needs to genuinely be an understanding by the regulators and legislators and the government on the actual cost to the system of the tax concessions and of super itself. And we believe that with a look at that, that things like the non-concessional contribution issue and the tax changes that were recommended will not actually be required. Because we need Australians in the future to be adequately able to retire with a dignified retirement and they need to be able to have an adequate amount to do that and so that non-concessional is very important not to be fiddled with.
St Anne: And what about SuperStream what issues should trustees need to look at?
Slattery: With SuperStream the SMSF trustees have been very good there is more than 60 per cent that have actually registered with SuperStream. What they need to do is they need to either register online through the ATO or with one of the other providers or go to their accountant and actually register through there or one of the administration service providers. Once they have that registration than they are able to meet the SuperStream requirements. It is something that is very small but it is actually a very practical thing to be able to do. The FSI has actually got another final submission which is due on the 31st of March and you must look at doing the SuperStream quite quickly. So there are a couple of important dates for trustees.
St Anne: Finally Andrea as an association what are the key priorities for you this year.
Slattery: Well some of the priorities we've got and there is a tax white paper which will actually be looking at the tax concession and the non-concessional issue that I just spoke about. We've also got the intergenerational report and federation report which actually also interact – interact with the tax white paper review and we've got Financial Systems Inquiry. So what we are hoping to do is to spend a lot of time with the appropriate people to help them understand that we need to have surety and clarity and we need to have – we need it simple for people to be able to save and retire and so we need to have a focus on the consumer and so most of all where it will be working towards helping trustees understand their roles and responsibilities helping the government and the regulators and the legislative designers understand that they need to build a future that lasts for 40 years in this particular retirement area.
St Anne: Andrea thanks again for your time.
Slattery: Thank you very much Christine, its pleasure
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. Top SMSF tips for 2015 Nicholas Grove 21/01/2015 http://video.morningstar.com/aus/video/141030_graemecolley_audio.mp4
Nicholas Grove: I'm Nick Grove at the Morningstar Individual Investor Conference in 2014. Today I'm joined by Graeme Colley from SPAA. Graeme you just gave your presentation. Can you just elaborate on what are few of the legislative risks that SMSF trustees are going to confront in the coming year?
Graeme Colley: Well, I think all the risks are around investments as they always are and making sure that if they are taking pensions out of the fund, they've got the cash flow organized and they meet the rules -- I mean, they are not borrowing out of the fund when they shouldn't be and things like that. So, they are the main risks I see.
Grove: You're also asked a question by one of the members of the audience about the advantages or disadvantages of corporate trusteeship versus individual trusteeship. Which of these do you think is preferable?
Colley: Well, probably corporate trustees work better because you're able to keep all your investments in one entity, whereas if you've got individual trustees and you change those individual trustees, you've got to have the investments in their names and that can be quite fiddly to sort that out.
Grove: Just finally, Graeme, what are some of the tips you would give trustees in order to get a better handle on their SMSF in the coming year?
Colley: Well, the first thing is "read". I think some of the financial press is pretty good. It's got some excellent tips on how the law is changing and what you need to do. Secondly, think about your fund. I mean, some people don't do that. The third thing is be responsible about that superannuation fund.
Grove: When you say "be responsible about your superannuation fund," what are some of the things that trustees should avoid doing with their fund?
Colley: Well, I think they need to think about the contributions that are going into fund because there are rules about them and penalties if you over-contribute. Secondly, make sure your cash flow is right to be able to pay benefits out when they're due. And thirdly, make sure your investments are suitable for what you're after in your fund.
Grove: Graeme, thanks very much for your time today.
Colley: Thank you.
Grove: I'm Nick Grove for the Morningstar Individual Investor Conference in 2014./video/transcript/2461 mailto: ?subject=Top SMSF tips for 2015&body=http://www.morningstar.com.au/video/story/2461 7 reasons why SMSFs outperform
22/07/2014 The key advantages to running a self-managed superannuation funds have also translated into strong performance. 7 reasons why SMSFs outperform Christine St Anne 22/07/2014 http://video.morningstar.com/aus/video/140625_smsf_audio.mp4
Christine St Anne: It's no secret that SMSFs have outperformed. Today, I'm joined by SuperGuardian's Olivia Long to give some of the reasons behind their performance.
1. Franking credits
Olivia Long: One of the key benefits of running your own super is the ability to customize your investment portfolio to suit your individual specific needs, not just invest for the average.
So, if you're in pension mode, just as an example, you can construct your portfolio, so that you take the full benefit of the value of the franking credits attached to some of the underlying assets that you hold in your fund, something that's not normally available to all other superannuation options.
Basically, once a member moves into pension mode, their superannuation balance becomes entirely tax-free. So where those members then invest in direct shares that have franking credits attached to them, you can actually get to a position where the ATO sends you a refund check every year.
2. Capital gains tax
With a self-managed fund, you can manage your capital gains tax down to each individual parcel of shares, which means at the end of the day, you're maximizing your returns on each individual investment.
3. Ability to transfer assets
Okay. So, for people who have existing assets in their own personal names, given the SMSF is one of the most tax-effective investment vehicles for the longer term, there is an ability to transfer in your assets from yourselves personally to the superannuation fund.
So, for example, if you are holding direct shares in your personal name, you can transfer them in way of what's called an in-specie contribution and move it into your super fund by way of a contribution. The same goes for commercial or business real property, being able to be transferred into your super.
4. Borrowing
Borrowing is a recent benefit available only to self-managed super funds. Essentially, you can borrow money to boost your retirement savings, whether you then choose to invest that in direct shares or property. Either way, it's an opportunity to leverage within your super fund.
5. Flexible pension planning
SMSFs are the most flexible vehicle when it comes to pension planning. Given that you can move from accumulation mode to pension mode and back to accumulation mode if need be, without the need to sell the actual underlying assets like you do with other retail funds, which means you don't then incur the capital gains tax on each of those transactions every time you want to consolidate a pension or rebalance or maximize your strategy.
6. Cost
If you've got a $100,000 within your super fund, essentially you can be better off from a cost perspective to transfer that balance to an SMSF, depending, of course, on where you're getting the administration done or what your costs are operating at.
7. Control
Control is definitely, I'd say, the key benefit in running your super fund, because at the end of the day you call all the shots, which means, you decide when to buy or sell, so you can react far more swiftly to changes in the investment market than the fund managers; you decide if you're happy with your returns. If you're not happy with your investment advisor, you can switch advisors simply and/or seek the advice of many. And at the end of the day, with control comes a level of engagement, where you're looking at your superannuation regularly, making sure you're happy with its performance and monitoring it and at the end of the day, you're likely to have a better outcome.
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. What the advice reforms mean for SMSFs Christine St Anne 09/07/2014 http://video.morningstar.com/aus/video/140709_fofa_audio.mp4 Christine St Anne: SPAA's Graeme Colley joins us again, and today he talks about the recent changes to the government FOFA reforms. Graeme, lovely to see you again.
Graeme Colley: Thanks Christine.
St Anne: Graeme, there's been a lot of discussion about the Future of Financial Advice or the FOFA reforms. Can you tell us exactly what are these reforms?
Colley: Well, FOFA was a range of measures brought in by the previous government to reform the financial services industry. Now, what that does is make sure that clients are well informed and that advisors are not conflicted in both the remuneration they get and the advice they give to the clients.
St Anne: Graeme, there's also been a lot of discussion about the new government, watering down these reforms. So what exactly has been watered down?
Colley: Well, it depends what you call watering down. There are some measures that the new government has brought in. Firstly, it's the opt-in provision where
clients were required every year to notify the advisors that they wanted good advice and they were willing to pay for that advice, and that's been done away with. There was a thing called the best interests duty. Now this came out of the Storm inquiry. It was a Queensland financial planning group where some things went awry with it; and with the best interest duty is a common law obligation of advisors to look in the best interest, that fiduciary interest they must have with their client.
Now, what happened with the previous government is that they added a number of things to that to make sure that there was not only the common law duty but also a statuary duty there. Now, on review of that, and we had our patron, Sir Anthony Mason have a look at that. He's an ex-Chief Judge of the High Court, and what he said was that the common law duty was probably enough to ensure that people were acting in the best interests of other parties.
Now with the catch-all provision that was put in there by the previous government, the current government has decided to do away with that. So, what it was saying was that, you can't gild the lily on this and that the original arrangement that was in place with a couple of minor changes there was certainly part of that. Another thing there was conflicted in remuneration and that was that if I give you some general advice or I give you other advice relating to your circumstances and I receive a commission for that, then that's regarded as being conflicted advice, because every time I sell that product I get some sort of commission payment for that. So, that's been I wouldn't say watered down but it's certainly different to the original proposal.
St. Anne: So, Graeme what are the implications from these changeson SMSF trustees?
Colley: Well, one of the things that came through; through not only the FOFA reforms but also the other superannuations reforms that came through, which are individually linked was that with the accountants there's a limited licensing arrangement involved and so for self-managed superannuation fund trustee's what they can expect going forward is that they'll receive better and higher quality advice I would hope from professionals in the self-managed superannuation fund area, that not only includes financial planners, because they're now moving forward to get taxation advice linked in, saw some licensing arrangements there, there was the registration of auditors, SMSF auditors and also the requirement that accountants, have received a limited licensing arrangement in place. So, they're the main impacts that come out of it. They're not directly from the FOFA reforms but they're from the superannuation reforms that get linked in with FOFA.
St. Anne: So, if trustees or individual investors are seeking advice, what sort of questions should they ask their advisors to make sure that these advisors actually comply with the new reforms?
Colley: Well, I think you need to look at the advice you're being given or the advice that will be given to you, the fees that you will pay for that. Make sure they open and disclose to you. Talk to other people who have used that advisor because word of mouth is very helpful for those, and also, have a look around on the websites and see what some of the independent opinions are on them. ASIC's got a good website about financial planners, licensing and what they should expect from a financial planner.
St Anne: Finally Graeme, the financial system's inquiry is set to release its preliminary results in mid-July. Does SPAA have any expectations?
Colley: We're certainly not privy to what's being announced with. Had a number of discussions with the committee and particularly David Murray about what we would like out of the inquiry. What we want to see is the development of a long-term investment market in Australia. It appears that if it's not broken, let's not fix it. There appears, with the committee that there'll be some comments in – some with self-managed superannuation funds, in particular on limited-recourse borrowing arrangements, and those sorts of things; but what we want to see is the development of a market which allows longer-term types investments. So, when you move into the pension phase of superannuation, you'll have greater security there, because with self-managed superannuation funds, what we've seen from some of the surveys is that going forward, the drawdown market or the pension side of superannuation seems to be solely devoted to self-managed superannuation funds going forward.
St Anne: Graeme, thanks again for your insights.
Colley: Thanks very much, Christine.
/video/transcript/2418 mailto: ?subject=What the advice reforms mean for SMSFs&body=http://www.morningstar.com.au/video/story/2418 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. A tax date with your SMSF Christine St Anne 02/06/2014 http://video.morningstar.com/aus/video/140521_tax_audio.mp4 Christine St Anne: SMSF Professionals' Association of Australia's Graeme Colley was on his way to a budget meeting. But we managed to grab some time with him to talk about some of the key dates trustees need to look at as the 30th of June deadline moves.
Concessional due date for lodgment of SMSF annual return for funds
Graeme Colley: Trustees, I think they need to get on to their accountant now, if they haven't done anything about lodgment of their self-managed superannuation fund return, because on that date the lodgment of returns is required. Some people might have to lodge earlier where they haven't put their self-managed funding over the last couple of years, but they'll certainly know about that, because their agent – their tax agent who – the main lodges of self-managed fund returns, would have got a very strong reminder from the ATO to get their returns in a bit early.
Payment assessments of superannuation contributions surcharge and termination payments
The 15th of June is the payment of the tax for the superannuation fund and also for the surcharge and the other assessments or termination payment assessments that are in.
The lodgment of superannuation assessment variation advice
On the 22nd of June, what needs to be done is the superannuation payment variation advice needs to going if there is any variation to the taxes required to be paid by the superannuation fund.
The due date for the payment of the assessments means that for those types of assessments for surcharge and other termination assessment that have been received, that that's when they need to get the payment seen for those amounts, but they would of – the agent for the particular client would have got that, for the moms and dads would have received that, so your tax agent would have received that and then he will be happily be chasing you up to get those payments in.
A reminder about the limits to co-contribution caps
Well, I think now we're looking into June, we're just about to start to June, its thinking of those year-end planning tips that we can look at for superannuation contributions in particular because that's when you want to get things in and I think that – think about putting too much contributions in the superannuation is certainly something you need to be aware of. That is from the 1st of July this year, we are seeing some indexation of the contribution caps and you need to have a talk with your accountant to make sure you are doing those contributions properly, because if you put too much in, you may not get the benefit of indexation when you've got non-tax deductible contributions coming into the superannuation fund.
New audit requirements
All superannuation funds have got to be audited, self-managed funds, because the ATO looks after those, have certainly got some new audit requirements. We are seeing that the audit must be conducted on records which are valued at market value basis, which is very important. That is a change over the last few years. We are saying five grader concentration with the revision of GS 009, which is the accounting standard that relates to auditing of self-managed superannuation funds in particular. So it's pretty important to understand what those variations are.
We are seeing the introduction of penalties from the 1st of July with the ATO. The ATO tells us that they'll be fairly lenient in the first six months of this new penalty regime coming in. I think we need to be careful to understand that if the fund has breached any of those rules that the penalty applies in whole. There is no part penalties there and I don't think people will truly understand that.
/video/transcript/2407 mailto: ?subject=A tax date with your SMSF&body=http://www.morningstar.com.au/video/story/2407 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. Keeping your SMSF simple Nicholas Grove 21/05/2014 http://video.morningstar.com/aus/video/140411_smith_audio.mp4
Nicholas Grove: I am Nick Grove at the Morningstar SMSF Conference in Sydney and I am joined by Barbara Smith.
Barbara, do you think that SMSF trustees should be at all worried about a property bubble?
Barbara Smith: I think in some of the capital cities, yes. I think you have to evaluate property as you do with any investment, have a look at the return and the costs and be aware that the costs aren't just rates -- it may be repairs and so on. And I think you also need to careful about resort property, which a lot of people invest in and a lot of people lose money in.
So I think you need to pick your property in a city -- if you can get commercial that's even better because the tenant normally pays the outgoings and normally is there for the longer term.
Grove: Also Barbara, what do you think trustees should have at the front of their minds given that the ATO is going to have the power to impose new penalties come the 1st of July of this year?
Smith: I think the main key is, keep it simple and straightforward. And if you do that you are not going to get into trouble. If you don't understand something don't invest in it. If you are unsure of something, ring your accountant or your adviser and ask them whether it's okay to do it before you do it -- don't turn up after the end of the year and say, "I did this, so is it okay?"
Grove: And do you think that self-managed super funds in Australia are generally well-diversified or do you think there is room for improvement in this area?
Smith: Look, every fund is different and every person running a self-managed super fund is different. So there is no one rule fits all. I think in general people are reasonably diversified, probably a little bit conservative and I don't think that is a bad thing with your retirement savings. And I think also you have to remember cash flow all the time, especially if you are paying a pension.
So you can't put all your money into a vacant block of land because you are going to have to pay tax and things like the expenses of the fund. So always keep some ready cash available in your fund.
Grove: Thanks very much for your time today, Barbara.
Smith: Thank you.
Grove: I am Nick Grove at the Morningstar SMSF Conference for 2014./video/transcript/2403 mailto: ?subject=Keeping your SMSF simple&body=http://www.morningstar.com.au/video/story/2403 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. Getting SMSF ready for SuperStream Christine St Anne 03/04/2014 http://video.morningstar.com/aus/video/140327_superstream_audio.mp4
Christine St Anne: The government has introduced a new measure called SuperStream designed to modernize superannuation. To talk about the implications for SMSFs, I'm joined by SuperGuardian's, Olivia Long. Olivia, welcome.
Olivia Long: Hi.
St Anne: Olivia first of all, can you tell us a little bit more about SuperStream?
Long: SuperStream is a set of measures that came out of the Cooper Review 2010. Essentially it's the government's way of bringing the superannuation back office into the 21st century. So some of the key features include an increased use of technology, uniform data standards, the use of an tax file number as a key identifier and a straight through processing of superannuation transactions.
St Anne: So Olivia the measures apply to SMSF members who accept employer contributions. So what do they need to do?
Long: So essentially for the past few years our providers have been upgrading a software. So that they can accept electronic superannuation messages, but it's not quite so simple for SMSF. So I consider it this way, if the employers are sending out superannuation payment information electronically, there needs to be some form on behalf of the SMSF to collect that information and pass it on to the members. So it's quite straight forward where they're using an SMSF accountant or administrator, because our software and I was asked to do that on their behalf, but for those that aren't they need to consider appointing some form of intermediary to act as electronic server address and collect that information for them.
St Anne: Olivia, so what are the key dates to be aware of?
Long: Okay. So by the 31 of May most SMSF members need to notify their employers of the electronic servers address and their banking information. By the first of July all employers with more than 20 employees need to implement the new electronic process. From 1 July 2015 those employers that have less than 20 employees need to implement as well. So there are two key dates there depending on the size of the organization you work for.
St Anne: Finally, Olivia I'm sensing involvement from the ATO, any tips for SMSF members?
Long: Absolutely, recently the ATO have written to a number of SMSF members to let them know what their obligations are, and what the key dates are. The ATO have significant amount of information available on their website to assist trustees with understanding what their obligations are, but also at least in the panel of providers who can help them and that is the – as the intermediary.
St Anne: Olivia thanks again for your insights.
Long: My pleasure.
27/03/2014 SMSF trustees face new audit requirements from the Australian Taxation Office Is your SMSF audit ready? Christine St Anne 27/03/2014 http://video.morningstar.com/aus/video/140325_audit_audio.mp4
Christine St Anne: I'm at the BT Financial Group's office and I just spoke to Bryan Ashenden, who will be speaking at an upcoming SMSF Trustee Day. He talks to us about the new audit requirements for trustees.
What is the deadline for selecting an auditor?
Bryan Ashenden: There is one true dead line, which is talking about at least 45 days before you do lodge your reports for that fund for the year. I think what's probably more important is not just think about that as the deadline. I think as you talk about how you run an operator fund throughout the year, there may be times depending on, what is that you are looking to do? You want seek some guidance or some support. And so having your auditor in place beforehand can actually assist you in that. So you can talk to them about this is what we are looking to do. Did I see any issues? Did I see any concerns with it? So you can address those things upfront rather waiting for them to provide an opinion at the end of the day.
What do trustees need to look for when choosing an auditor?
There is now requirement essentially from the 1st of July this year that the auditor needs to be an approved auditor. So, that's really the first thing that people will need to look for. And what that means from an auditor's perspective is that they have registered themselves with the regulator, which is ASIC in this situation.
You're also probably looking to see, what sort of qualifications do they have? For examples, have they completed a specialist qualification around auditing in self-managed superannuation funds? Are they a member of a professional body? And some of the really simple questions like, how many other funds do they audit? Is it someone that is very, very experienced in this space? Or is it someone that might audit five funds a year and then perhaps he isn't as on top of the issues, as a really experienced auditor might be.
What information do they need to provide?
So the auditor's requirement here really is, they need to sign off on a couple of things. So, as a minimum, funds are required to produce an operating statement and effectively a statement of the financial position, so what are the assets, the liabilities and so on. So that's the minimum sort of things that would be provided. And it's not that the trustees themselves will gather and collate all of that information, that's using an administrator, is often where they can come into a system, making sure that all those documents are prepared correctly and they have been handed over the auditor.
But it's also that showing from the auditor's perspective, have the trustees done all the things that they need to throughout the year. So things such as do they have minutes in place, to show that they have considered their investment strategy, that they have considered insurance, which is an important requirement these days of investment strategy. So, evidence that they are complying with the legal requirements as a trustee and their duties throughout the year, because an auditor needs to provide an opinion on that as to whether they believe the fund has met its obligations or has potentially breached some obligation.
What is an SMSF auditor number?
A self-managed super fund's auditor number. What this really is now is, actually it's the proof that the person who does the audit of the fund has appropriately registered with the regulator. So that they are showing they have got the relevant experience, the relevant qualifications and accreditation to do these sort of work and it's really, really important. This is part of this new requirement that came in from the July 1, 2013 and where it becomes really important is that number actually gets filled in on the fund's tax return when it gets lodged with the ATO. So if a fund lodges its tax return and doesn't have their audit number in there, essentially again the trustees aren't meeting their obligations. So it's – we feel like it's the identifier to say that, yes, we have an appropriate person who is auditing the fund.
Would your auditor be accountable for any breaches?
It's a really good question. Of course, we never want any breaches to happen and getting the right experience and having the right people support you throughout the process, should may – that that doesn't happen and that's going to be, whether it's with the administrator with the financial planner or a lawyer, depending on really what trustees are looking at.
In terms of those sorts of breaches, there are certain responsibilities on auditors if they hold themselves out as having this appropriate qualification and they don't, they can get penalized, but that's more of an administrative penalty coming direct from the ATO, saying where the auditor hasn't done the wrong thing.
Where you are probably looking from a trustee perspective, again is, trustees themselves assume a lot of responsibilities and as much as I can contract with someone like an auditor, an accountant, a financial planner to assist them through the process, trustees generally still retain the full responsibility. If however you get to a situation where an auditor perhaps should have picked something up and hasn't and therefore hasn't reported it, or brought it to the attention of the trustees that's probably the question about do the trustees have any rights against the auditors themselves and there is nothing in the legislation that really backs that up.
/video/transcript/2394 mailto: ?subject=Is your SMSF audit ready? &body=http://www.morningstar.com.au/video/story/2394 Key rulings for SMSFs
20/03/2014 AMP's Peter Burgess outlines key legislative considerations for trustees Key rulings for SMSFs Christine St Anne 20/03/2014 http://video.morningstar.com/aus/video/140225_rulings_audio.mp4
Christine St Anne: We're at the SMSFs Professionals' Association or SPAA National Conference, and today I'm joined by AMP's Peter Burgess, who was recently called the superman of SMSFs. Peter, lovely to see you.
Peter Burgess: Thank you, Christine. Thank you for having me.
St Anne: Now, Peter, your topic was on key legislation in SMSFs. So, we could begin by asking, you'd mentioned that 2013 was a rollercoaster year in terms of legislation. So, what part of the legislation did the new government end up keeping?
Burgess: Yes. Well, it really was a rollercoaster ride in my view for self-managed super fund trust deeds. We started the year with a number of changes which were slated to come into effect from 1 July, 2013. Many of those changes didn't eventuate, and during the course of 2013 we also had a number of announcements, many of those didn't eventuate either. So, by the end of the year we were pretty much back to where we started from.
So, what we know as a result of the consultation phase that the government has been through, we now know the measures that they are looking to proceed with. So, these are measures previously announced by the government; the previous government, so we have some certainty now as to which measures are proceeding.
So, new penalties, for example, for trustees, is one of the measures which we know that the government is keen to proceed with. So, we were expecting that measure to be introduced in the parliament very soon for this to start from 1 July, 2014.
St Anne: And on that area of the new penalties for the – and to the ATO, so what does that mean exactly, because you'd mentioned that that could be meaning that SMSFs could look for a new corporate trustee. So, I just wanted to know if you could explain that a little further, Peter.
Burgess: Yeah, so assuming they put in the measures the same as what was previously introduced in the parliament last year, because they did introduce a bill to give effect to the stopped penalties from 1 July, 2013, but that lapsed with the calling of the election. So, they're going to need to reintroduce this measure. So, assuming it is the same as what they did last year, what that will mean is three additional powers that the ATO will have to take action against trustees who breach the rule.
So, a direction – a rectification direction, so they'll be able to direct the trustees to actually rectify the breach, a power they don't currently have, and education direction is where they can direct the trustees to undertake some education; and finally, a sliding scale of administration penalties. So, the ATO will have the ability to impose penalties which are more appropriate to the severity of the breach.
So, in relation to corporate trustees, individual trustees, what's interesting is the way those administration penalties will be levied. If you have a corporate trustee, for example, and you file to produce financial statements, then the penalty for that is $1,700, but it's levied at the corporate trustee, once on the corporate trustee. If you have individual trustees, each individual trustee will incur a $1,700 penalty.
So, if we ever needed another reason to have a corporate trustee, I think there's another one in terms of the way these penalties will work.
St Anne: Now, on the very topic or area of excess contributions that there's more changes in there and you'd mentioned in your speech about comparing the new and the old, so what exactly is now the new requirement?
Burgess: Yes. Well, in 2013 there was a number of changes enacted to the tax treatment of excess concessional contribution. So, that's changed. So – and these are – a lot of these changes are effective 1 July, 2013. So, when it comes to excess concessional contributions, they are now added to your assessable income and taxed at your marginal rates. Under the old system, it used to be a 31.5 per cent tax rate. We don't have that anymore.
So, it really went – when we talk about concessional contributions, there is no such thing as excess contributions tax anymore because the excess is just automatically added to your assessable income.
So, that was quite a significant change and a good change, because for people on low to middle incomes, under the old system they were paying effective rate of 46.5 per cent tax on their excess concessional contributions, and in many cases, it was an inadvertent mistake. So, the new system is certainly a lot fairer in that respect, yeah.
St Anne: Now, Peter, can you give us an example – and I've to refer to my notes here – on the latest on excess non-concessional contributions?
Burgess: Yes, yes, yes. Okay, excess non-concessional contributions, I guess the big news here – and the coalition has been very public about their desire to address the disproportionate penalties that apply to excess non-concessional contributions. So, severe rates of excess contributions tax applying to these excess non-concessional contributions. In many cases, it's an inadvertent mistake. We know the Commissioner has a very narrow interpretation or definitely, the legislation has a very narrow interpretation of what constitutes special circumstances.
So, the coalition is very keen to address that. So, we're not sure how they'll do that, but what was interesting is, last year, in February last year, whilst in opposition, the coalition did try to amend the rules around Commissioner discretion to give the Commissioner greater powers of discretion. And they also – and that was intended to cover inadvertent mistakes. So, where the client acted on advised by the advisor or the fund just made the contribution the wrong use, those type of things would constitute an inadvertent mistake and the Commissioner would be able to exercise discretion in those cases.
So, they tried to amend the rules last year. So, is that an insight as to what we can expect this year? Is this the way the coalition is intending on fixing this problem? If they are, we would work on that. My only concern is that it might result in a significant increase in the number of discretion cases coming before the Commissioner which may clog up the system.
So, I guess as an alternative to that, perhaps we could think about refunding excess non-concessional contributions in a similar way that we now do it for concessional contributions. Personally, in my view, I think it's inevitable that we will get there at some point.
St Anne: And finally, Peter, of course, property has been a big issue with SMSFs and we had minister Arthur Sinodinos touch upon that. So, is that going to be something that the government and SPAA will be focusing on?
Burgess: Yeah, look, I think what we heard from the minister today was also consistent with what I've been hearing from Treasury and that there is no intention to review these arrangements at the moment. So, the two-year review which has been much anticipated but now long overdue doesn't appear to be occurring. The Treasury haven't been instructed to commence their review. I think what's more likely given that we've got the financial sector review now that any type of review of these arrangements will be incorporated as part of that review. We heard from the minister today there is no intentions to do a standalone review of these arrangements. It will be incorporated into this sector review as will the licensing of these arrangements. And we think that's important that we do get this sorted out. We actually encourage a review of these arrangements to address the licensing issues and so forth.
St Anne: Well, Peter, looks like certainly 2014 another rollercoaster year. Thanks for giving us the insight to rather complex part of SMSFs. Thank you, Peter.
Burgess: Thank you, Christine.
St Anne: Thank you.
17/03/2014 -- Do trustees know best? Christine St Anne 17/03/2014 http://video.morningstar.com/aus/video/140225_trustees1_audio.mp4
Christine St Anne: We are at the SMSF Professionals' Association or SPAA National Conference, and today I'm joined by Graeme Colley to give us an insight on whether SMSF trustees know best. Graeme, welcome.
Graeme Colley: Thank you, Christine.
St Anne: Now, Graeme, you presented on a particular survey with Russell Investments. Can you tell us a little bit about the survey? It was about getting intimate with SMSF trustees.
Colley: Well, this is the first survey that we've done with Russell, and this time we've interviewed about 1,400 trustees; of which 800 didn't have self-managed superannuation funds and then we interviewed about 400 advisors. So that gave us a good idea of their perceptions of each other, and where they're positioned in the market at the time.
St Anne: Now, in terms of SMSF trustee perceptions, in terms of their approach to investment markets, how did they approach the various asset classes out? Say for example, in terms of Australian equities, they produced a good return. Is the wall of cash moving from SMSFs into this asset class?
Colley: What we have seen with that, is that of the trustees of self-managed superannuation funds that 42 per cent of them go for professional advice, and we've seen that they've got more diversified investment portfolios, which include shares and things like that. We have seen some movement out of cash, but not to the extent that we expected. I think the main reason for that is that people are still fairly conservative in the current climate.
St Anne: And in terms of international equities, that was also an asset class that produced good returns, of course, not any SMSF trustees, but Australian investors in general maintain a home bias. Are you seeing maybe that sort of change as well?
Colley: Well it's changing from the point of view that they are looking at ETFs as an investment class. They are also looking at what they see as a diversified company. Say BHP for example, which has got investments overseas and they signed that in those circumstances. That's really international diversification, which truly isn't because sometimes those companies specialize in particular markets. So it's a little bit of – we are not looking broad enough, I think from the investment class itself and that's what they really need to do.
St Anne: So I suppose does that answer the question whether SMSF trustees know best? I mean do they really need some kind of advice to help them with their investment strategy?
Colley: Well with the investment strategy, it appears to us that the problem is that they're not looking broadly enough at the investment classes themselves. The diversification seems to come through the obtaining of professional advice. So that is not an indicator by itself, but it's certainly an important consideration. So, if they're not going to go for professional investment and advice, then I think they need to look at learning a little bit about that investments and how you diversify your portfolio.
St Anne: And Graeme can you give us an insight into how SMSF trustees interacted with advisors? I know that the Minister Arthur Sinodinis, early this morning said that he resonated with the philosophy of do-it-yourself of more individual approach. Is there a need or recognition that maybe advisors need in this area?
Colley: What we are saying, we have got three classes of mom and dad trustees. We have got what we call the controller, we got let's call it the coach seeker and the outsourcer. And what we see from the research that we have done with Russell is that the controller, they are people that really do it themselves. They are starting to look around for advice, and they're sort of putting their toe in the water I suppose.
Now the coach seeker, are people that use advisors and they learn from that and I think they're the best sort of client to have. And then the outsourcers are people that just hand it over and just hope for the best that they have got the right advice.
St Anne: Graeme. Thank you so much for your insights today and nice to see you again.
Colley: Thank you, Christine.
/video/transcript/2392 mailto: ?subject=Do trustees know best?&body=http://www.morningstar.com.au/video/story/2392 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. Getting ready for contribution cap rises Christine St Anne 13/03/2014 http://video.morningstar.com/aus/video/140312_caps_audio.mp4
Christine St Anne: The fiscal 2015 year will finally see increases to contribution caps into super. Today I'm joined by SPAA's Graeme Colley to talk about the changes. Graeme, lovely to see you, again.
Graeme Colley: Well, thanks, Christine.
St Anne: Graeme, so what are the big changes?
Colley: Well, the changes when you are talking about contributions are from the 1st of July this year and we're seeing an indexation in the $25,000 cap and that's the concessional contributions cap to $30,000 and that's part of the normal indexation in $5,000 lots. And from that we're seeing an increase in the non-concessional contributions cap as well and that goes up to $540,000.
St Anne: Graeme, so how can trustees take advantage of those rises?
Colley: Well, it's not the trustees, it's the employers making contributions to the superannuation funds by making sure that they – if they want to maximize their contributions, not only with the concessional contribution cap going to $35,000 normally for everybody. But for those who are 50 and older, we are now seeing an increase to $35,000 for their contribution cap. So I've now got two concessional contribution caps for any people who contribute to super. On top of that, if I want to make non-concessional contributions, that's a move from $450,000 to $540,000, if you can access the bring forward rules.
St Anne: So how did the new concessional contribution cap rises impact the non-concessional cap rises?
Colley: The link between the concessional and the non-concessional contribution cap is that the non-concessional contribution cap is equal to 6 times the concessional contribution cap. So when you are looking at that being $30,000, it means that we're now moving to 6 times that, which is $180,000 for the year-by-year non-concessional contributions cap.
St Anne: Finally Graeme, any traps to avoid?
Colley: There are some traps in it. That is for people who are salary sacrificing. They need to review this salary sacrifice arrangements, because they might have that. Now say that the maximum concessional contribution cap of $25,000 or another cap that they might have there. So making sure that that gets in close to $30,000 from the 1st of July, if they wanted to maximize their salary sacrifice. For those that are between age 50 and 60, making sure that they maximum salary sacrifice and that can go up to $35,000.
So that's very important, because what we've seen in the past, is that people when the contribution caps have changed either up or down, people have missed out on the opportunity or in some cases where the contribution caps have gone down they've been caught by excess concessional contributions tax. So that's really important there.
The other thing is that, when you are triggering the bring-forward rule for non-concessional contribution caps, the trap there is that, if you've already triggered it in the last two years, that's fixed for the next three years. So that, if I've triggered that say in this financial year, then for the next two financial years my non-concessional contribution cap remains at $450,000. But if I wait until the 1st of July and trigger it, it then goes up to $540,000 for the next three years.
So you really need to be careful of those two things. First is salary sacrifice, and secondly, is the impact of the non-concessional contribution cap.
St Anne: Graeme, lovely to see you again.
Colley: Thanks, Christine.
Graeme Colley will be speaking at the fifth annual Morningstar SMSF Trustee Strategy Day. The event will provide practical strategies for avoiding common traps in managing your SMSF. Register now for this fully catered event by simply visiting the Morningstar website./video/transcript/2391 mailto: ?subject=Getting ready for contribution cap rises&body=http://www.morningstar.com.au/video/story/2391 3 key legislative changes for SMSF trustees
07/02/2014 Trustees need to grapple with a number of legislative changes made by the ATO. 3 key legislative changes for SMSF trustees Christine St Anne 07/02/2014 http://video.morningstar.com/aus/video/140203_spaa_audio.mp4
Christine St Anne: The SMSF Professionals' Association of Australia or SPAA will be holding its annual conference in February. Today, I'm joined by Graeme Colley to talk to us about some of the key issues on the association's agenda.
Graeme Colley: The rules which affect the Centrelink benefit rules and what that will mean going forward is that there will be a deemed demand just like ordinary savings or other investments that will be included in a person's income for assets and income tax purposes. So it's a big change from what it is at the moment.
So, from 1 July 2015 what we will see is that we won't be able to use the deductible amount as we can at the moment for new pensions from that time. So, I think the best lesson is to get into those types of pensions if you got a client in those circumstances prior to 1 July 2015 because there is certainly greater benefits coming out of that.
Well, I think in order to think about dividend washing and share of asset washing because in that ruling, the draft ruling that was recently brought out that's 2014/D1, it relates to a self-managed superannuation fund with purchased and sold shares within the one sort of very close transaction. And it's whether Part IVA will apply to that. And that's tax avoidance rules and so they're relatively complex and they have got an example in that draft ruling as to how that works.
I think they're much better. They're much equitable in the way in which they'll work, far better than the SIS legislation at the moment. I think we'll see the ATO less reluctant to impose penalty. So we'll see more penalties being around, therefore, trustees – it really muck things up. And I think we applaud those from SPAA's point of view. We think they're fairer and the way in which they'll be applied I am sure will be appropriate, in these circumstances, rather than the difficulties that the ATO has got at the moment.
Well, we've just about finished our draft of that and that should be to the government very soon. Now, my concerns are the e-commerce standards.
We want to see some things coming there about the roll-over benefits between superannuation funds and the proof of identity. We want to see the 10 per cent rule changed in some ways with concessional contributions, mainly because we think that's too complex and there's a bit of red tape around that. They're the main issues that we've got. There is also some administrative matters that we've got in a pre-budget submission that we'd like to see the government bring through.
23/01/2014 Westpac's David Simon outlines five key new year resolutions that will maximise portfolio performance. 5 new year resolutions Christine St Anne 23/01/2014 http://video.morningstar.com/aus/video/140116_newyear_audio.mp4
Christine St Anne: Happy New Year, everyone. Today Westpac's David Simon joins again to talk to us about five key new year resolutions for investors.
David Simon: Tweaking your portfolio is an absolute classic. I mean, markets will move around regardless of economic conditions and as markets move around, it's really, really important to have a long-term strategic asset allocation strategy. So that means rebalancing on a regular basis and certainly not being a spectator.
The major asset classes of Australian shares and international shares and property indeed as well as other alternative asset classes like fixed income and currency are very, very fluid assets. They always move and having a very strong discipline strategic asset allocation is very, very important when you show the long-term plan stays the course.
Tax efficiency is certainly that people need to be aware of all the time, and there are certain things that people should be very cognizant of throughout the period. The first one is really knowing your marginal tax rate. Believe it or not, a lot of people actually don't know their own marginal tax rate.
Notably, there has been quite a few changes out of recent years on the tax rates, but people need to understand what the marginal tax rate is.
Other aspects around taxes is ensuring that people understand the right tax structures or the tax structures that are available. People can invest in a myriad of different options, such as a trust which gives control and discretion on how income and potentially capital was displaced. You can also look at other entities, such as superannuation, which is really, really, really efficient. Income tax is taxed at a maximum rate of only $0.15 in a A$1 and capital gains tax can be managed at a maximum rate of only 10 per cent. And indeed if you are in pension phase which for some people that's only from the age of 55 at the moment, you can actually be in a tax-free environment much like a non-for-profit where there is no income tax or capital gains tax whatsoever.
Other aspects around tax is understanding and managing gains and losses. People can be carrying losses forwards, so they can offset gains in the future indefinitely if they are carrying capital losses. And other aspects around capital gains is if an individual owns an asset for greater than 12 months, they get a discount of 50 per cent on their capital gains tax. So, it's really important that that people are aware of these tax situations.
The other aspect is all assets that generate income is largely taxable, but for some assets there are concessions such as Australian shares, franking credits can make the assessable income concessionally assessed, and indeed with property, the depreciation on property can also ensure that the tax assessment is more concessional than other traditional income such as interest from a term deposit.
According to ASIC, over half of the people that pass away, pass away without a will. So, that means that the law determines where assets are placed, and that could actually include relatives where you know the deceased effectively resents, so really important that people have an appropriate will.
But it doesn't just stop at the will when you're referring to things like estate planning. It can be a lot more complex and a lot more structured incorporating different techniques such as having a Testamentary Trust, Power of Guardianship, and also a Power of Attorney shows that not just the estate is managed appropriately, not just when one passes away, but also somebody is incapable or unable to make a decision while still being alive is important part of the overall estate planning.
Insurance is only necessary for people that don't have the provision in place or have accumulated assets sufficiently to ensure a replacement income or replacement of capital in the event they're not around. So, for those people – and that are traditionally more in the accumulation phase, for those people then insurances can be a very important part of their contingency planning. And there are many different ranges of insurance that people can look into. Certainly there is the staple, such as the lump sum insurance in the event of death, and that's particularly important for people that have large debt or maybe single income households where if the income earner is no longer around, they're not able to repay the mortgage, let alone the (lots of) expenses of the family. So, that's particularly important.
Other aspects such as disability and critical illness or trauma insurance is also important because that will pay a lump sum in the event of a critical injury or illness allowing the insured person to recuperate, but ensure there is no financial implication whilst they are out of action.
Other aspects such income protection is also critical for people that are completely relying on their own ability to exert labor in order to generate income. So, it's a tax effective product as it is largely 100 per cent tax deductible, but effectively replaces one's income in the event they are unable to work due to illness or injury.
There is no such things as a plan set in stone. I mean, as we all know our lives change. So, personal circumstances change in a very, very regular basis. On top of that, you've got financial markets that are always moving around. The legislation continues to change as well as the economic conditions, both domestically and globally. We will always evolve and will always move around.
So, it's absolutely critical that people are making sure that their strategies continue to be looked at, whether it's a business plan or personal plan or financial plan, they are continually reviewed to ensure they stay on track. That's where it's good to have quality advice, whether it's a legal advisor, whether that's financial planner, whether it's an accountant, really good quality professional advice will ensure that there is that underline discipline, ensuring that people stay on track regardless of how things move around.
21/01/2014 Property expert Margaret Lomas outlines effective strategies for maximising a property portfolio and managing these assets in retirement. Getting value from your property portfolio Christine St Anne 21/01/2014 http://video.morningstar.com/aus/video/131217_property_audio.mp4
Christine St Anne: It's my greatest pleasure to introduce property expert Margaret Lomas to talk to us about how to effectively manage a property portfolio. Margaret, welcome. Margaret Lomas: Thank you.
St Anne: Margaret, firstly, how many properties should an investor hold in a portfolio?
Lomas: It's a really good question and very often people either over think it or under think it. So you get people who might buy one or two and think that they are set for their retirement, which of course they're not. But then you get other people and it's probably perpetuated by the fact that people write books about hundreds of properties in portfolios, who think you just have to keep going and going. I think it depends on, first of all, how much time you've got until retirement. But if you're starting early enough, and early enough would be somewhere around 40 or maybe a little early up, then if you have 15 years available to you, 10 properties will create for you pretty good return income and be enough to also then grow, so that you've got a good asset base behind you.
St Anne: Margaret, of those 10 properties, what about an underperforming property? Your latest book did mention a lemon. So can you explain that?
Lomas: The old lemon. Look, if you buy enough properties, you're going to get a lemon. There is no two ways about it. One of the things that often holds people back from even buying their first property is this fear that it will be a lemon and very often people are looking for that perfect property. So for every day they are waiting to find the perfect property is another day that that fair to middling property could have been sitting in their portfolio and probably performing okay.
But if you get to the point where you do buy lemon and it could be your first or your tenth or your fifth property, then you got to have a look at that property and work out the extent of its poor performance. Is it really a real lemon? Is it doing things like holding you back from buying more property, because it's taking up spacing your equity position? Is it costing you a lot of money in cash flow? So you don't have the money that you need to continue to pour into debt repayment, because debt repayment is very important to create additional equity.
Is it the kind of property that maybe fails to get tenants? Is it the kind of property that's situated in an area where you are continuously doing repair work, because you tenants are not caring for the property? Is it bad enough to get rid of it? If it is, then you have to sell it. Very often people might not want to sell, they are holding and hoping that it's going to improve or to sell it they might take a short-term loss. But you've really got to be able to project that forward and very often that short-term loss is far better than the overall loss that it could create staining that portfolio too long.
St Anne: Margaret, a lot of the investor puts together their portfolio of properties. What about in retirement? How do they sell down those assets? In other words, what's an effective exit strategy?
Lomas: Whenever people start their property portfolios, they always believe that they know exactly how they are going to finish off that strategy. I think it's more important that you don't have firm plans around that until you get a little closer. That for many reasons so much can change – capital gains, tax regimes change. You don't know exactly what that portfolio is going to be worth. You don't know what your personal position is going to be in terms of whether or not you're going to be getting any government assistance, whether you are going to be self-funded?
However, having said that, in the main, most people think that when they get their portfolio of 10 properties, they will get to retirement, sell half of them, payoff whatever debt is there and that's based on the presumption that they all would have doubled in value by then and then leave on the remaining five. But it's interesting that once you start building that portfolio, you begin to realize that perhaps you don't need to do that when you get there. When you get to retirement, your property portfolio is going to actually be worth the smallest amount that it's going to be worth from then on, presuming that property in the main will grow, providing you bought some good properties into that portfolio.
You could hang on to that and its' worth at 70 is going to be more than its worth at 60. This all depends, of course, on what kind of cash flow you're getting out of it. But a property of 10 portfolio – a portfolio of 10 properties should be giving you a reasonable income of retirement presuming that you have no personal debt left. There is no reason why you can't sit on that and continue to borrow and continue to add to it, if you like, knowing that the income on it will grow as you get further into retirement.
St Anne: Finally, Margaret, what about capital gains? It's an issue that many people still grapple with.
Lomas: Unrealized capital gain is worth more to you than realized gain, which is another reason why I am not necessarily in favor of the sell-down strategy once you hit retirement. What you have as an asset is worth more to you than it would in cash because once you liquidate, you are going to lose some of it to capital gains tax.
The capital gains tax isn't always quite as big as people think it's going to be. Let's remember that there is 50 per cent discount. So, once you get to retirement and you do sell a property, you will charge capital gains tax on only half of the gain and that's only your marginal rate of tax. So, whatever you are earning at that time determines the tax rate on that gain. So in reality most people are going to end up with something like 20 per cent or so capital gains tax.
But having said that, it's better not to incur it. So if the property portfolio is already giving you a fairly good cash flow, then there is no reason to liquidate. If you do liquidate though, you have to understand that there will be capital gains tax and there are some strategies around that too. So, just selling them one at a time in different years, so that they are nowhere being sold together and quite often you can take advantage of those lower tax thresholds every year if you do need to sell down that portfolio.
St Anne: Margaret, thanks so much for your insights today.
Lomas: You are more than welcome.
/video/transcript/2381 mailto: ?subject=Getting value from your property portfolio&body=http://www.morningstar.com.au/video/story/2381 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. What can SMSF trustees expect in 2014? Christine St Anne 17/12/2013 http://video.morningstar.com/aus/video/131206_education_audio.mp4
Well, it's nearly the end of the year now, and today I'm joined by Peter Lee from Mind Wealth Management to talk about what SMSF trustees can expect for 2014. Peter, nice to see you again.
Peter Lee: Thank you. It's great to be here.
St Anne: Peter, the newly elected coalition government has already launched an enquiry into the financial services sector. What can SMSF trustees expect from this enquiry?
Lee: This enquiry will most likely look at the financial services sector and superannuation sector, with the aim of increasing efficiency and reducing the regulatory burdens, which I think, that will be actually a win-win for a lot of consumers out there.
Superannuation is now appropriately A$1.4 billion to A$1.5 billion of assets. It's one of the largest private savings pools in the world, and it's tipped to actually double in the next 10 to 15 years.
So, the government just wants to make sure that people setting up a self-managed super fund are finding there is an appropriate structure to hold their investments, are well educated in terms of their responsibilities and their legal obligations.
St Anne: There has also been a lot of concern about SMSFs and the property market. Would these also be part of the enquiry?
Lee: They're also a little bit concerned about the rise in investment properties within self-managed super funds, namely around borrowing to invest and maybe a bit of property speculation in that sector. They want to make sure that they are matching the long-term obligation s as trustees of the fund to their short-term needs of their members.
And to give you an example, with most investment properties, the returns are around 2 per cent to 3 per cent per annum after taking into account tax and running costs, whereas most people take out 5 per cent to 6 per cent of pension withdrawals per annum. So, we see a gap in terms of the investment strategies that some funds might hold if they're fully invested in investment property.
We advise all our clients to be well diversified in their approach to the investment strategy and make sure that they are matching the long-term obligations of the funds to the investment strategy that they implement.
St Anne: The government has also moved to abolish the tax on pensions over $100,000. Peter, can SMSF trustees expect more favorable measures?
Lee: Look in our view, the abolishment of that tax over $100,000 of superannuation earnings is a good move by the government. We do want to have a fairly stable legislative environment to encourage people to actually save for retirement.
In terms of further favorable measurements, I get the feeling that the government will probably leave the superannuation system as it is and wait for the results of their enquiry with any tangible benefits announcement probably being announced later in the term of the government.
St Anne: On that point of not to agree with the system, the government has also delayed the increase in the superannuation guarantee, therefore, would there be more of an emphasis on voluntary measures?
Lee: Look I think there would be some incentives to actually look here to the voluntary superannuation contribution caps. But we see there might be some competing interests in this. On one hand, they do have a current account deficit, which they need to balance. So, they're unlikely to increase the contribution caps too far in my view.
On the flip side, they do want to provide incentives for the people to be self-funded in a retirement, and we see the reason for this is that, with the aging population and a lot of baby boom is coming up to being eligible for the age pension, funding for this age pension will be a greater problem for governments going forward in the medium to longer-term.
So we expect that the governments will have to balance out their short-term needs to their longer-term obligations.
St Anne: Finally Peter, ASIC, the corporate watchdog is looking also closely at the SMSF sector, and in particular, educational standards. Is that something that trustee should need to look at in 2014?
Lee: Look, in my view, greater education standards for the trustees can only be a good thing. They will be more aware of their obligations as trustees and the legal obligations of running a self-managed super fund. But more importantly, I think, it will actually help the trustees make better investment decisions and better decisions overall in relation to their super funds.
St Anne: Peter, nice to see you again and have a great Christmas.
Lee: You too, Christine, Merry Christmas and a Happy New Year.
/video/transcript/2377 mailto: ?subject=What can SMSF trustees expect in 2014?&body=http://www.morningstar.com.au/video/story/2377 Do SMSFs need a minimum balance?
30/10/2013 Should minimum balances be set for SMSFs in order for them to be run effectively? Do SMSFs need a minimum balance? Christine St Anne 30/10/2013 http://video.morningstar.com/aus/video/131022_balance_audio.mp4
Christine St Anne: Should SMSFs have a minimum balance. There seems to be a perennial debate in the industry. To answer this question, I'm joined by Olivia Long. Olivia, welcome.
Olivia Long: Thank you.
St Anne: Olivia, some experts in the industry are calling SMSFs to have a minimal balance of, say, even around $500,000. What's your view?
Long: Okay. At present, SMSFs don't need a minimum balance, and I'm of the firm opinion that we should be keep it that way. The Cooper Review in 2010, which was an extensive review into the superannuation industry, also agreed that SMSFs should not have a minimum balance in order to be established.
St Anne: But, Olivia, isn't it cost effective to run a larger fund?
Long: Okay. More cost effective than what, because I think for a long time now, $250,000 has been cited as the magic figure for an SMSF, and that's based on the average cost compared to the portfolio value. So, these days if we're not doubling it to 500,000, what are we basing that on? Is it on cost? Is it on size? There is no justification.
Earlier this year, ASX engaged Rice Warner to conduct a review into superannuation costs, overall. And what it actually showed is quite interesting. If we compare an industry fund, a retail fund, and an SMSF, let's look at your average two-member fund and a $250,000 balance. In an industry fund, the average cost of operating each year is $2,140. The retail fund was $4,540 as compared to an SMSF at $1,750. So that's our $250,000 balance.
So, let's now look at the $500,000 balance and your two-member fund. An industry fund fee, the median was $4,140. The retail fund was $8,940 compared with than SMSF at $1,999. So at $500,000, we're already seeing savings of up to $7,000, if you're purely basing it on cost, looking at SMSF compared to a retail fund.
St Anne: Okay. But is there any circumstances where SMSF may not be appropriate? Is there such a thing as maybe too low a balance?
Long: Okay. Again, I think logic does prevail, but it depends on the circumstances; how many members are in the fund, what is their starting balance, what are future contributions likely to look like. Do they have additional money that's about to come into them that they want to contribute to super. Are they looking to acquire property related to a business? There's a number of questions that people should be asking themselves.
For example, is a SMSF right for me? Do I understand investments? Am I willing to take responsibility for my retirement savings? There's a number of questions people should ask themselves before looking at the balance.
St Anne: Finally, Olivia, some regulators seem to be making some noises. Do you expect some increased regulation in the SMSF market?
Long: There may will be and I think the majority of it's likely to be around advice. But when it comes to a minimum balance, I'd say, let's look at the SMSF sector as it currently stands. The most recent stats we have indicate that 5 per cent of SMSFs have zero to $50,000 in their portfolio. A further 5 per cent of the sector is $50,000 to $100,000. SMSFs from $100,000 to $200,000 make up or represent 11 per cent. And 25 per cent have $250,000 to $500,000. So, if we're going to set – or set this expectation that the minimum level should be $500,000, already we're wiping out nearly half of the SMSF market; for what I see is no real good reason.
What I prefer people do is start to look at the rate of return and what people are actually doing within their funds. One of the clear benefits of an SMSF is to where to control an attention. I can't tell you how many trustees I ask, what the costs are they currently paying, they can't answer the question. So, it's not just about cost.
If you look at your average retail super fund, the average rate of return over the past 10 years has been just 3.4 per cent. So 3.4 per cent, which I think is pretty average as opposed to what I am seeing in self-managed funds. The SMSF stats are nearly double of that, but again we've seen other funds significantly outperform that.
So, I'd rather look at SMSFs and look at the opportunity that they provide, the flexibility, their providing terms of investments, and the likely opportunity as opposed to basing an opinion on the cost.
St Anne: Olivia, thanks so much for your valuable insights today.
Long: Thank you.
/video/transcript/2357 mailto: ?subject=Do SMSFs need a minimum balance? &body=http://www.morningstar.com.au/video/story/2357 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. Understanding new SMSF guidelines Christine St Anne 20/09/2013 http://video.morningstar.com/aus/video/130919_guidelines_audio.mp4 Christine St Anne: Corporate regulator, the Australian Securities and Investments Commission, has come out this week with guidelines for advisors providing advice in SMSF sector. To give us an insight into what those guidelines mean, I am joined by BT Financial Group's Bryan Ashenden. Bryan, welcome.
Bryan Ashenden: My pleasure.
St Anne: Bryan, under the proposals, advisors are required to give SMSF trustees advise about things like costs, risks, and the investments strategy behind running such a fund. Are those things already done already?
Ashenden: It should be. It's an important part of the advice process that whenever – certainly whenever a financial planner is talking to a client that they should be talking about the risks of investment and then include the structure when you talk about a self-managed super fund. So certainly that should be happening. I think also another area where it does happen, but perhaps what this is trying to address, is how much people take notice is at the moment when a new trustee signs up for a fund. That's when they remember they are going to become a trustee.
They've got to complete a trustee declaration with the ATO (Australian Taxation Office), and it sets out a whole lot of rules and responsibilities as a trustee. It doesn't quite do it as the member and perhaps that's where some of this difference is, albeit often you're giving the advice to the same person whether it's a trustee or as a member of the fund, so there are some bits there. Perhaps where you don't see it through is people that don't currently operate under an AFSL (Australian Financial Services License); you are making recommendations to people about establishing funds. So today that as a classic example might be the accounting spaces.
St Anne: Bryan, you mentioned the AFSL license. So do you think advisors and accountants operating in the SMSF sectors should also hold a similar license?
Ashenden: I think it's really important that anyone that's providing advice to someone going into a self-managed super funds, so whether they already in it – the investments they are going to have there or about setting it up, should actually be operating under the same set of rules. So that's probably the Australian Financial Services License say that as, I guess, the base minimum requirement. There has already been some moves there, so the previous government talked about introducing this new limited license for accountants to go there, albeit that's not coming into effect until July 2016, in full effect. We're in transitional mode now, but I think the recent numbers are showing that there aren't many accounting practices that have applied for it during this current transitional period. But I do think it's appropriate to have the same, consistent safeguards apply to advice that is provided to the end client or the end consumer, whether that's coming from a financial planner, from an accountant, or whoever it is. It should be a consistent basis.
St Anne: The guidelines also look at the minimum balances of an SMSF fund and Rice Warner has come out saying that SMSFs need a minimum of $500,000 to effectively run. What's your view?
Ashenden: I always hesitate about saying a minimum balance. I think there are a number of things that come in to – $500,000, as they talk about in the report, is for someone that's using a fully-fledged administration service and not really doing any of the administrative work themselves, and perhaps that is the right answer. Again, the number is going to defer depending on who you use to provide those support services, because there is different rates out of the marketplace. I think what's more important though is actually why does somebody want the self-managed super fund. That should always be an overriding consideration, because if you say $500,000 is where an SMSF becomes quite competitive, it doesn't mean people with more than $500,000 should be in one. They might afford to it, but it might not be right, because you've always got the questions about trustee responsibilities that you need to take on. So that's a really important consideration.
It's also about what is a person looking to invest into. So if someone's just looking to invest superannuation monies into things like managed funds, perhaps shares, fixed interest type investments, you don't really need to be in a self-managed super fund to do that. So it's always a question about what's their real purpose. Perhaps, it's when you are looking at some of the more unique type of investment, so selling direct property, if you're going to have a direct property investment, you are going to be looking at a self-managed super fund and you might be starting with less than $200,000, so less than the $500,000 that Rice Warner was talking about.|
The question there really is how quickly is it going to build up in value, when is it going to get to an appropriate level that it becomes cost effective. But again, what is that the actual end client is trying to achieve and what's in their best interest. Sometimes a self-managed superfund is appropriate and other times it won't be. I think it's really hard to just define it by a dollar value.
St Anne: Bryan, so in choosing an advisor, what's sort of questions do trustees ask of them to ensure that they are getting the advice that they need?
Ashenden: I think the real key question for anyone looking to get advisor in a self-managed super fund, so talking to a professional like a financial planner or, again, even if it's an accountant or its administrator, it's going to be real questions to that person about what's their level of experience and expertise. Most dealer groups these days have some specialist requirements for their planners who wish to provide advice in the area of self-managed super funds, and whether that's completing a particular course.
Sometimes it might be a membership of a professional association, so there is SPAA, the SMSF Professionals' Association of Australia, as an example, where it might be that they need to be a member of the FPA (Financial Planning Association) or AFA (Association of Financial Advisers). When you are looking at accounting side of things, again, many of the accounting bodies these days has specialist designations. Again, that's about making sure minimum qualifications, minimum requirements about ongoing education. So, for a client, that's going to be the number one thing is to actually what's the persons experience. How many other clients do they deal with today in the SMSF space? I think that's probably an added important question, because you can hold all the qualifications you want, but you might not physically deal in this space on a daily basis, and it is quite complicated. So not just the education, but also I think the level of experience ongoing day-to-day activities that people have in that space are really key critical questions.
St Anne: Bryan, thanks so much for your insights today.
Ashenden: Not a problem at all. /video/transcript/2344 mailto: ?subject=Understanding new SMSF guidelines&body=http://www.morningstar.com.au/video/story/2344 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. What the Coalition means for super Christine St Anne 13/09/2013 http://video.morningstar.com/aus/video/130911_super_audio.mp4
Christine St Anne: Today I am joined by SPAA's Graeme Colley to discuss what the new government should do for super. Graeme, nice to see you again.
Graeme Colley: Thanks very much, Christine.
St Anne: Graeme, firstly, what are the coalition's commitments to superannuation?
Colley: Well, they are still committed to the three pillar policy that has come out of the World Bank report many, many years ago, which is great to see. But the main policy aspects are the super guarantee and delaying that for up to two years. They are going to bring in some more governance issues for the bigger superannuation funds, and they are having a look at the low income rebate for superannuation contributions for those only under $37,000.
St Anne: The self-managed superannuation funds or the SMSF sector has grown significantly. So, what sort of things should the new government focus on?
Colley: The main concern with self-managed super funds like all superannuation is the adequacy in superannuation and the amount people have got for retirement. So, based on that, we are looking at consistent contributions and excess contributions. They are the sorts of things that we think are important. They are not specifically self-managed funds. They basically impact on all superannuation.
St Anne: Graeme, you mentioned the delay of the superannuation contribution levy. Do you think that the new government will focus more on measures to boost voluntary contributions?
Colley: Voluntary contributions, it's certainly part of the equation. There is no doubt about that because we're looking at three pillars. So you've got the age pension, super guarantee, and then what we call voluntary contributions either out of your own savings or a salary sacrifice. You would expect that when you are looking at adequacy, encouraging people to put more into superannuation, we will be able to do that, either through salary sacrifice or just after savings – after tax savings.
St Anne: Graeme, so in the end, will the superannuation guarantee levy actually impact SMSF trustees?
Colley: Well, I don't think so. I think they'll have an impact on self-managed superannuation fund trustees, mainly because they have got access to salary sacrifice and can maximize their superannuation contributions anyway. You've got self-employed people, who make a determination on the amount of profit they are going to earn as to whether they will contribute to superannuation. So, while it might sound like there could be some impact there, I don't think it will be great.
St Anne: Graeme, the coalition has said that it would not introduce any changes to superannuation, but of course an enquiry into financial services is on the cards and obviously superannuation will be part of that. So you are expecting any reforms, or any changes to superannuation?
Colley: Well, we haven't seen the outline of what that enquiry will be, but superannuation certainly is included in it. What reforms would we like to see out of that? Maybe something to do with the retrospectivity in the legislation, certainly review that because that makes superannuation all the more complex for the ordinary consumer.
St Anne: Graeme, thanks again for your insights.
Colley: Thanks very much, Christine.
25/07/2013 The latest changes to concessional superannuation caps may mean a change of strategy for trustees. Key changes to super caps Christine St Anne 25/07/2013 http://video.morningstar.com/aus/video/130723_caps_audio.mp4
Christine St Anne: We are at the SPAA boot camp for the self-managed superannuation fund or SMSF sector. Today, I am joined by Peter Burgess to look at some of the big changes in concessional contributions facing the industry.Peter, welcome.
Peter Burgess: Good to be here.
St Anne: Peter, firstly, what have been the big changes to the eligibility rules around concessional contributions?
Burgess: Look, there's been a lot of changes to excess concessional contributions. The rules have pretty much been repealed in terms of excess concessional contributions. We now have a new regime that applies to excess concessional contributions made from 1 July this year. So, under the new regime, if a client makes an excess concessional contribution, it's automatically added to their assessable income. That automatically happens.
Now, under the regime that existed prior to 1 July, it was slightly different. Under that regime, individuals would receive an excess determination or notice they could then choose to pay their tax themselves, or they could seek a refund from their fund of the excess and that excess would then be added to their assessable income. Under this new approach, it's automatically added to their assessable income when they make an excess concessional contribution.
St Anne: What about the excess contributions charged? Can you tell us a little bit about that?
Burgess: Yeah, the excess contribution charge is something that's new, and that applies when the Tax Department has to amend someone's tax assessment because they have an excess concessional contribution. So what they do is they amend the individual's tax assessment to take into account that their assessable income has now been increased as a result of the excess concessional contribution, and they add on the concessional – sorry, the charge on top of that, so they pay the additional tax liability as well as this excess concessional contribution charge. It's calculated daily and compounds daily.
St Anne: Speaking about charges, Peter, in your presentation you also mentioned the shortfall interest charge. What's that about?
Burgess: Yeah. Look, in addition to the excess concessional contribution charge, which applies from the 1st of July in which the client made the excess contribution, so regardless of when they made the excess contribution in that year, it automatically applies from 1 July of that financial year. In addition to that, we have a shortfall interest charge. Now, that's applied on top of the excess concessional contribution charge because the client has effectively – well, underpaid their tax, if you like, and so they incur a shortfall interest charge.
St Anne: What about the key issues around the release of concessional contributions?
Burgess: Yeah, look, it's an optional thing. Clients do not have to release the 85 per cent of their excess if they don't want to. There's two scenarios that come to mind which suggests that it's probably a good idea they do, and one is where they've already maxed out their non-concessional contributions and this excess concessional has triggered the bring-forward rule. That can lead to some very significant amounts of excess contributions tax. If that's the situation, then it may pay the client to release that excess, because once they do that their non-concessional contributions are reduced by the amount that's released, grossed up by 15 per cent. So that will result in the inadvertent bringing for triggering going away.
The other scenario that may – where release comes in handy is where the individual doesn't have the cash in order to pay the additional tax liability that they've now incurred as a result of those excess contributions being added to their assessable income. So they may not have the cash flow to pay that as well as the additional charge, the excess concessional contribution charge, and the shortfall interest charge. So they may need the cash out of the fund in order to pay that. So there's two scenarios where I can think of where you'd probably pay for the clients to do that.
St Anne: Finally, Peter, we are heading towards a new election, what areas of focus would you like to see the new government look at?
Burgess: Yeah, so I think concessional contribution caps for the start-out. We've had an increase now to 35,000, but we still don't have any long-term commitment from the government that they will provide a higher cap for individuals approaching retirement. The 35,000 will be phased out over time as the standard concessional cap is indexed. So we would like the government to commit to a higher cap for people that are 10 to 15 years out from retirement on the sort of higher concessional cap.
We would also like the government to address some of the severity around non-concessional contributions, excess non-concessional contributions. So what they've done for concessional contributions in terms of allowing a refund and so forth, we would like to see some of those rules extended to non-concessional contributions as well.
St Anne: Peter, thanks so much for your insights this morning.
Burgess: Sure, thank you.
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 the budget means for SMSFs Christine St Anne 15/05/2013 http://video.morningstar.com/aus/video/130515_smsf_audio.mp4 Christine St Anne: The federal government's budget announced this week contained little surprises for the superannuation industry. However, they are some initiatives that SMSF trustees need to consider. To talk about some of the initiatives, I am joined by SPAA's Graeme Colley. Graeme, nice to see you again.
Graeme Colley: Thank you, Christine.
St Anne: Firstly, Graeme, is there anything to like about the budget?
Colley: Well, the effort that SPAA put in over the last few years certainly came to light over the beginning of April, and it was great to see the government confirm those announcements. The two good things we saw out of it; firstly, was the increase in concessional contributions to A$35,000 for those that are 60 and older, and that comes in at the 1st of July this year, and next year we see age 50 and above allowed to have higher concession contributions. That was the first thing we feel was great. The second thing we feel was great was excessive contributions, and the refund of excessive contribution fits into our policy position we've had for some time, and in addition to that, when the excess contributions are refunded, there is going to be an interest component to that. So it's simple to understand, and I think it will be very efficient and practical in the way in which the government is going about it.
St Anne: With the positives aside, what about any concerns?
Colley: The main concern with us is the way in which pension income in the superannuation funds will be taxed going forward, and that is with anybody who has got an account in superannuation and that account in this pension phase will be more than $100,000, then that will be taxed at 15 per cent. While that might be a simple concept being taxed at 15 per cent, the administration already is horrific and the reason for that is that everybody's account in Australia will need to be recorded on the amount of income in pension funds. So, you think about that, how many people in Australia would be drawing down pensions at the moment and how many may not end up with incomes on their pension assets of more than $100,000. I'd say that's quite a few people, because the government is expecting that around about 16,000 people will be impacted by that, but we think there will be more than that simply because of variations in earnings rates of superannuation funds.
St Anne: Graeme, as you know, we are going into an election in September, so how likely are these changes to be passed, and should SMSF trustees really act now?
Colley: Well, on one announcement they shouldn't be concerned at all, because this afternoon, which is the day after budget, we know that the legislation for the $35,000 concessional contribution is going into the parliament. So that will go into the House of Reps this afternoon, and you would expect go through a Senate relatively quickly, because the government rises on the 27th of June. So that's great news.
Now for the $100,000 arrangement, we haven't seen the legislation for that. Whether we see that before the end of the financial year or before the parliament rises, we are not sure at the moment. The other thing with the refund of the excess contributions, we haven't seen the legislation for that, but hopefully the government will get that through. I would imagine that it will have bipartisan support, not only from the government, but the opposition and probably the Greens in the crossbenches as well.
St Anne: Finally, Graeme, the coalition is yet to respond. What sort of things would you like the coalition to focus on?
Colley: With the opposition, I think that support of an increase in concessional contributions, the refund of excess contributions, tax I think they must support that, because I know Senator Cormann has been speaking to us and a number of other people about how difficult that is for many people. As for the $100,000, I'm not so sure about that. I can imagine, I would say, we don't agree with that, because it's going to be very complex to administer, and maybe they won't support that. I really don't know at this stage.
Then I doubt whether they may come out with other new ways of looking at superannuation under these rules. We expected at one stage that we would have a deferral of some of the indexation and for contributions and so forth, but we didn't see that in the budget, and I doubt whether the opposition would support that, particularly in an election year.
St Anne: Graeme, thanks so much for your time.
Colley: Thank you, Christine.
/video/transcript/2295 mailto: ?subject=What the budget means for SMSFs&body=http://www.morningstar.com.au/video/story/2295 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. What to do with falling super contribution caps Christine St Anne -- http://video.morningstar.com/aus/video/120531_caps_audio.mp4
Christine St. Anne: The government recently announced a number of changes to superannuation. Today, I'm joined by Westpac's David Simon to discuss these changes and strategies to best maximize your superannuation. David, welcome.
David Simon: Thank you, Christine.
St. Anne: David, the government recently made a number of changes to the contribution caps. What are the implications of these changes?
St. Anne: Yeah Christine, there are three primary considerations that members need to consider about superannuation, and predominantly those are over the age of 50 are really going to be impacted. So there are three considerations and implications that they need to consider. Certainly, transition to retirement, strategies need to be reviewed quite immediately. Their actual contributions themselves need to be reviewed and indeed, consideration around that actual nest egg and what the end result will be need to be reviewed.
So to detail those out, the transition to retirement strategy, a lot of members that are currently over the age of 55 years of age are contributing around 50 - are up to their maximum contribution of $50,000 into superannuation. They are attracting a concessional tax rate of only 15% on those contributions. Whilst they are going into superannuation, these members who're actually subsequently drawing a concessionally assist income from their pension to supplement the actual sacrifice into super and they are affectively in a much better and advantageous tax situation by doing that. Due to the government reducing their contribution cap limit from $50,000 to $25,000 they are affectively halving the benefit for those transition to retirement strategies, so they no longer as effective as they once were.
The other consideration is obviously for people that are making those contributions of $50,000 into super at the moment that aren't event doing the transition to retirement, so indeed those people from the age of 50. So whether they're making salary sacrifice contributions, or whether they are self-employed and making personal deductible contributions, and of course, inclusive of their existing employer contributions it all wraps up to make that $50,000 before tax. For those over the age of 50, it's no longer be going to $50,000, so they need to desperately reconsider their strategies and get it down to that cap of $25,000. Indeed if they don't, they will be hit with those penalties around excess tax on contributions.
And finally, the other implication, which is the most important one I suppose is what it's all going to mean to their retirement nest egg when they need the money most. They can no longer contribute as much money as they were previously, so, are they still able to meet their retirement aspirations with that?
St. Anne: So, against all these challenges David, will we see people, perhaps doing a bit more contribution splitting?
Simon: Yeah, look that's a really good point. So in 2014, there's going to be a $500,000 threshold. So basically for those members that are over the age of 50 and have less than $500,000 invested in superannuation, they will then again be entitled to access that $50,000 cap, which includes their salary sacrifice, self-employed deductible contribution, and employer contribution. So indeed, if there is a member of a couple that has a greater amount than $500,000 and a member of a couple that has an amount that's lower than $500,000 the idea would be for that member that has less than $500,000 to stay beneath that threshold.
So, what's likely going to happen is that member would then divert 85% of their contributions to be the maximum to the member of the spouse that has a greater level than $500,000 preserving their benefit beneath, so they can access that more generous threshold and cap from 2014.
St Anne: David, we know that these announcements are only new, but are there any strategies at the moment that people can adopt to maximize their retirement?
Simon: Yeah look, it's a good question and we've only started to look at those strategies right now. Some of those strategies would be for people that are actually contributing $50,000 now that actually continue to do so and incur the actual access contribution tax. So, I think for those individuals that are on the highest marginal tax bracket at the moment, they will maintain that tax bracket if they were to exceed the $25,000 cap. The benefit there is that it then goes into a more concessionally tax environment. So, there is still a viability there. It's certainly less than what would be before the budget announcement.
Obviously, investors need to be very careful they don't exceed both there before-tax contribution and after-tax because the penalties are then significant and up to 93%. Other strategies that we're starting to look at is to some clients that have that risk appetite to actually take on more risky assets, hoping that over the long term that will fill some of the void though having less money contributed into superannuation.
Another strategy would be to make after-tax contributions into superannuation rather than relying on that before tax which indeed has its own threshold. And finally looking at non-superannuation by strategies such as investment in shares or property could be considered as other alternatives.
St Anne: David, now, we know that June 30th is on the horizon, are there any pre-tax strategies that people can adopt?
Simon: Look, certainly for those individuals that are over 50 they are at a limited time where they can still access that $50,000 contribution, so I certainly encourage them to utilize that benefit whilst it's still here. There are a series of other benefits that individuals can review that are non-superannuation based. Some of them being the prepayment of private health insurance, certainly for individuals that are earning certainly above the average, they could actually loose their 30% rebate. So the idea is to prepay the private health insurance; indeed other aspects such as bringing forward medical expenses, the government budget that's recently announced changes in the gap threshold, as well as the rebate to individuals and families, so it's about bringing them forward and accessing those.
Other aspects such as 'in-specie' transfers of assets, such as shares that may be in an individual's name into a more concessional environment to superannuation as an after-tax contribution, seeing as the market is relatively low by moving assets from one structure to the other will ensure they go into more concessionally tax environment with reduced capital gains tax impact. But certainly there are a variety of different strategies that individuals can explore, that certainly it does - does obviously come down to their own personal needs and objectives and overall investment timeframe and philosophy, and certainly risk profile. So, we encourage they receive quality financial advice.
St Anne: David, thanks so much for your insights today.
Simon: Okay. Thank you, Christine./video/transcript/2143 mailto: ?subject=What to do with falling super contribution caps&body=http://www.morningstar.com.au/video/story/2143 SMSFs - the pros and cons
26/03/2012 Westpac's David Simon outlines the benefits of SMSFS as well as the traps to avoid. SMSFs - the pros and cons Christine St Anne 26/03/2012 http://video.morningstar.com/aus/video/120326_SMSFs_audio.mp4
Christine St. Anne: Self-managed superannuation funds or SMSFs, continue to achieve spectacular growth in Australia. To give an idea about what are the pros and cons behind these funds, I'm joined by Westpac's, David Simon.
David, welcome.
David Simon: Thank you, Christine. Good to be here.
St. Anne: David to begin with, can you give us some idea about this growth?
Simon: Yes, sure. Look, self-managed superannuation, the growth has been nothing short of spectacular. In fact, in 1998, about 12% of Australians owned a self-managed super fund. Yet today around 33% percent of Australian own a self-managed super fund. So by far it's a growth - the fastest growing sector and we believe that some of that growth has been – catalyst being the global financial crisis.
So people that have had a bad experience with their previous fund have become almost despondent and looked at other areas, where they can effectively manage the money better themselves and are hence being attracted to that sector.
St. Anne: So what are the reasons behind the growth?
Simon: There is a whole array of advantages that have attracted people to owning a self-managed superannuation fund and control and choice is the primary one. So having a self-managed super fund allows people to access various assets that would otherwise not be offered through a public fund. So having access to assets such as direct property, indeed art and collectibles, direct shares, term deposits and manage funds, amongst many others, allows people that choice and that freedom around choosing their assets.
Indeed aspects such as asset transfer is also a really attractive part of a self-managed fund. So indeed that people that own assets in their own names will be paying tax at their own marginal tax rate, but being able to especially transfer these into a self-managed fund means that they are able to enjoy, the lower taxation rates that are available with superannuation and indeed quite often we've seen people that run their own businesses, and have a commercial property or business rule property, we've even seen people like that move those properties into their self-managed fund to free up the cash flow of their business and obviously, we've seen many people transfer assets like shares and managed funds from their own name into a self-managed.
We also find that other areas such as being able to pool - you are managing a self-managed fund, so typically your self-managed fund can have about up to four members. So having four members combine all of their money into one fund, that typically have the signed objectives and characteristics, really gives them scale. So it allows them to access opportunities they otherwise wouldn't be able to access as an individual and indeed really keep the fees down by having that ability to pool the money.
St. Anne: What about tax advantages?
Simon: In a self-managed super fund, if there is an asset that's grown and accumulated value through the accumulation phase. If they were to liquidate that asset and realize a capital gain they would need to pay tax. Now, if they are in a self-managed fund, that can effectively migrate that fund into a pension phase and then sell the assets that accrued to capital gain and not pay any capital gains tax at all. So there certainly are some significant advantages that have attracted people to that sector and indeed that's being represented in those growth rates.
St. Anne: You mentioned a number of advantages, what are the key things that investors need to consider before entering into an SMSF
Simon: So, some of the aspects and some of the considerations that people need to consider are really serious. The first one is the responsibility of running a self-managed fund. Now the trustee of the fund and indeed the corporate director of a corporate trustee are obliged to be able to manage that fund in a compliant manner, and indeed, if the fund is deemed to have breached their compliance and becomes incompliant, then the penalties are rife. One of the penalties is the asset being taxed at the marginal tax rate, so not the actual income of the assets, but the assets that are contained in the fund itself can attract the highest marginal tax rate. I am aware of stories where trustees of self-managed funds have had to pay out hundreds of thousands of dollars in tax because the fund is being deemed incompliant.
There are even other aspects such as fines and even jail terms for extreme beaches of superannuation fund compliance. Another area is expertise. People may open a self-managed fund and roll over their money into cash and then say where do I invest it? So one of the disadvantages and what people often over look is the requirement of the investment expertise in accessing a self-managed fund to ensure that they are managing in a very smart way but also in a strategic fashion. So it's really important that they have the skills and the expertise to do so.
One other thing is time. I mean time is a precious commodity in this day and age, and it takes a lot of time to manage the ongoing concern of a self-managed fund. In fact, there was a recent study where the average trustee needs to spend about five hours every week in managing a self-managed fund. It is not too different to managing a private company, so that certainly one thing that's particularly overlooked as well.
St. Anne: The amount of responsibilities you mentioned David, can investors outsource these?
Simon: Yeah, sure. The whole aspect around time and expertise and indeed the compliance function can all be outsourced, but that would probably beg a question, say, if you're outsourcing all of those, is it a do-it-yourself or is it a self-managed super fund?
St. Anne: Do investors need a minimum balance to start up an SMSF?
Simon: Yeah, certainly Christine. There is a lot of controversy around what would be the reasonable amount that is required before you set up self-managed fund. Look, there's no hard and fast rule when everybody has their own opinion, but certainly depending on the complexity, the purpose and the structure of a self-managed fund, whether it's a corporate trustee or public trustee or indeed if the purpose of the self-managed fund is to acquire direct property through - borrowing through an instalment loan, the set up cost can become quite material and expensive, and indeed if a fund is typically worth less than $250,000, the additional accounting, audit and legal fees, generally make it more expensive than a public offer fund. So, as a general rule of thumb, about $250,000.
St. Anne: David, thanks so much for your insights today.
Simon: My pleasure, thank you.
-- Understanding the Cooper review's proposed changes to our super and SMSFs. Cooper, super and SMSFs -- -- http://video.morningstar.com/aus/video/ -- /video/transcript/1572 mailto: ?subject=Cooper, super and SMSFs&body=http://www.morningstar.com.au/video/story/1572 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. The changing role of fixed interest -- 21/09/2010 http://video.morningstar.com/aus/video/ -- /video/transcript/1669 mailto: ?subject=The changing role of fixed interest&body=http://www.morningstar.com.au/video/story/1669 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. Super's good, bad and the ugly -- 23/09/2010 http://video.morningstar.com/aus/video/ -- /video/transcript/1673 mailto: ?subject=Super's good, bad and the ugly&body=http://www.morningstar.com.au/video/story/1673 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. Planning your DIY super in 2012 Jeffery Hutton 23/01/2012 http://video.morningstar.com/aus/video/120123_diy_super_audio.mp4
Jeffrey Hutton: Self-managed super funds; they make up third of the superannuation industry and they are only going to get bigger. So 2012, what are the big issues they need to be thinking about. Well, Andrew Baker joins us from Perpetual to talk about just that.
Andrew thanks of joining us.
Andrew Baker: Thank you, Jeff.
Hutton: So Andrew, how do you account for the popularity of DIY Super?
Baker: We've seen a huge growth in the self-managed super funds, participants over the past few years and I think, given that the turmoil out of GFC and the experience that people had, I think at the heart of it, it is about flexibility and control, and again that transparency. So, many will do it all themselves, many might seek assistance with certain aspects of the running of a fund compliance or administration. But at the end of day it's their call, so it's not a product that they are in necessarily, it's a structure that's their own. So, I think it's that that's driving that behavior.
Hutton: This year concessional caps are the lowering of them to 25,000 is going to be a big issue, right?
Baker: Wall Street's very important to take advantage of all of those strategic opportunities and the caps being of vey high profile one. It does in fact need to fit into your strategic goals and objectives that you've set for short, medium and long-term. So, it's not just about sort of rushing in and taking advantage of the caps, it's about saying 'does that fit into my strategy?, have I got my cash flows mapped for the year?'.
Its $25,000 and I mean a pre-tax or salary sacrificing that can be very powerful. But I think you did see some of that behavior in 2007 around the $1 million opportunity. So, putting money into super is one thing, but making sure that it's going to be efficiently invested is perhaps another. So, you do need to look at it holistically and not just sort of react to a deadline.
Hutton: That's all about the plan, isn't that right?
Baker: That's right and really understanding, what's the opportunity cost if I don't do it. So, if I'm not going to take that opportunity, what are the opportunities costs for me not doing that.
Hutton: That point you are making about the $1 million contribution, what was lesson of that?
Baker: If people were making contributions to super and not really thinking about the actual way that that was invested, they experienced severe loss of capital. So, if you adjust sort of piling significant amounts of money on top of your existing investment strategy without really considering that - do you see what I mean? You are separating strategic and tax issues from investment.
Some products, if you put money in it just basically sweeps across the investments that you are already in. Again with sort of breaking apart strategy from investment, you are able to say, well okay I can make the contribution but I might allocate it to cash as opposed to being in for a penny, in for a pound to that existing investment strategy.
Hutton: So, cash balances for the past couple of years have risen, I think to about 30% or so, those were the latest figures. Should trustees be moving out of cash and reallocating?
Baker: Well look, I mean, I think there's cash and then there's cash and fixed interest, and cash fixed interest and international fixed interest. Look, it's certainly been a consolidating program that many have gone through and waiting for investment markets to hit some level of perceived or real recovery before allocating through. Again, it comes back to the fundamentals: you really need to make sure you've allocated for short-term expenditure; you've got any capital expenditure in play. They're the must haves, understanding those decisions, understanding what you need, before you can start to say well should I start to reallocate.
Once you've gone through that process of figuring out what you do need in cash from a liquidity perspective and start to move to the portfolio, we'll sure, that's when asset allocation needs to come to the fore. What are we telling our clients? It's a balance of making sure that we don't make any rash decisions. It's about understanding what your true risk profile is, going through the GFC on your own or with an advisor, what was your actual behavior? What did you do? What did you feel? It's understanding those questions, and answers to those questions, which will then drive well, do we retire in the current asset allocation and risk profile or do we change?
Even if you retire in the current asset allocation and risk profile that you have, yet you need to then test what's going on in underlying investments within that risk profile. So, alternative investments, direct property, which we do believe smoothes return, reduces risk. Let's face it, the Australian investment community has a love affair with Australian shares, and you've got a couple of big names in that ASX top 50 that carry huge amount of risk in many people's portfolio. Again, I think it comes back to fundamentals and not sort of, I guess, bowing to people's popular opinion, which is as soon as I see some opportunity in the ASX, I'll dive back in there, because I don't like this asset class and I don't like that asset class. It's not a prudent approach.
Hutton: Andrew, I suppose the point that I'm trying to get at is, are people going to continue to be risk-averse or will appetite for risk improve?
Baker: Yeah. Look, I think there is a couple of things in play. I think clients do understand that bring in cash for ever is not going to achieve their goals and objectives. So, they are starting to head back in and probably six or eight months ago it was when we started to see people moving back in. But interestingly seeing people head back into international assets was very interesting. And, I mean we've always stuck to our guns from our recommendations point of view, but saying clients more open to that I think the currency helped.
Whilst we very much have their own views on asset allocation and investment selection, we also respond to our clients requests and particularly the high net worth space, they kin of know what they want, where their interests lying, and that's the space. Australian equities, looked they have remained very strong throughout. So, we will see rebalancing into Australian equities, but I think most of the clients that we've had experienced with have retained those allocations. They were very, very loathed to sell down those positions.
Hutton: So, what are the big bumps coming up in 2012, I suppose Europe will be one of them?
Baker: We do see tough times in Europe, there is no doubt about it and particularly potential recession. However, whether that will have the impact or massive impact that some people are saying, not sure. We do see the U.S. actually starting to improve. So, no recession in the U.S. really is our view. Then Australian markets, well some research is showing potential 10% returns and coming back to good growth and income.
What we do think though is that portfolio construction will be very much about income, and that's a bit of a change to the sort of addiction to growth that many have had in investment markets really over the past several years. We don't see huge growth being the driver of investment decisions. It needs to come back again to fundamentals, which is, what is this investment going to yield me? Which should also then drive the value of that - price of that asset, over the longer term.
Hutton: Andrew Baker, thanks a lot for joining us.
Baker: No problem. Thanks very much, Jeff.
01/09/2011 SMSFs have boosted their cash allocations but is it time to diversify into other asset classes? Time to get out of cash? Christine St Anne 01/09/2011 http://video.morningstar.com/aus/video/ -- /video/transcript/1954 mailto: ?subject=Time to get out of cash?&body=http://www.morningstar.com.au/video/story/1954 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. All you need to know about SMSFs Darin Tyson-Chan 31/03/2011 http://video.morningstar.com/aus/video/ -- /video/transcript/1824 mailto: ?subject=All you need to know about SMSFs&body=http://www.morningstar.com.au/video/story/1824 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. Death's effect on SMSF borrowings Darin Tyson-Chan 06/10/2010 http://video.morningstar.com/aus/video/ -- /video/transcript/1682 mailto: ?subject=Death's effect on SMSF borrowings&body=http://www.morningstar.com.au/video/story/1682 Lump sums have merit too
28/09/2010 Considering an income stream in retirement? Don't ignore lump sums. Lump sums have merit too Darin Tyson-Chan 28/09/2010 http://video.morningstar.com/aus/video/ -- /video/transcript/1676 mailto: ?subject=Lump sums have merit too&body=http://www.morningstar.com.au/video/story/1676 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. Property acquisitions using gearing -- 22/09/2010 http://video.morningstar.com/aus/video/ -- /video/transcript/1671 mailto: ?subject=Property acquisitions using gearing&body=http://www.morningstar.com.au/video/story/1671 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. 5 ways SMSFs may become non-complying -- 13/09/2010 http://video.morningstar.com/aus/video/ -- /video/transcript/1664 mailto: ?subject=5 ways SMSFs may become non-complying&body=http://www.morningstar.com.au/video/story/1664 Extra pay needs extra planning
31/05/2010 Extra pay, windfalls and bonuses are great but good planning can make it better. Extra pay needs extra planning -- 31/05/2010 http://video.morningstar.com/aus/video/ -- /video/transcript/1653 mailto: ?subject=Extra pay needs extra planning&body=http://www.morningstar.com.au/video/story/1653 Art for SMSFs' sake
31/08/2010 Artwork and collectables back on the table for SMSF investors. Art for SMSFs' sake -- 31/08/2010 http://video.morningstar.com/aus/video/ -- /video/transcript/1651 mailto: ?subject=Art for SMSFs' sake&body=http://www.morningstar.com.au/video/story/1651 Emerging trends in SMSFs
04/08/2010 SPAA chair Sharyn Long shares her knowledge of what SMSFs are up to at the moment. Emerging trends in SMSFs -- 04/08/2010 http://video.morningstar.com/aus/video/ -- /video/transcript/1650 mailto: ?subject=Emerging trends in SMSFs&body=http://www.morningstar.com.au/video/story/1650 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. Tax tips for SMSFs in FY10/11 -- 19/07/2010 http://video.morningstar.com/aus/video/ -- /video/transcript/1647 mailto: ?subject=Tax tips for SMSFs in FY10/11&body=http://www.morningstar.com.au/video/story/1647 Getting SMSF taxes ready
-- We've put a line under FY09/10 but how do we best prepare our taxes for the year. Getting SMSF taxes ready -- -- http://video.morningstar.com/aus/video/ -- /video/transcript/1608 mailto: ?subject=Getting SMSF taxes ready&body=http://www.morningstar.com.au/video/story/1608 Putting that extra into super
-- Andrew Proebstl, chief executive of legalsuper tells us how the fund encouraged record voluntary contributions from members Putting that extra into super Christine St Anne -- http://video.morningstar.com/aus/video/ -- /video/transcript/1602 mailto: ?subject=Putting that extra into super&body=http://www.morningstar.com.au/video/story/1602 Super no shelter for fraud
-- -- Super no shelter for fraud -- -- http://video.morningstar.com/aus/video/ -- /video/transcript/1453 mailto: ?subject=Super no shelter for fraud&body=http://www.morningstar.com.au/video/story/1453 Do SMSFs seek advice?
-- SMSF members like control but do they eschew advice? Do SMSFs seek advice? -- -- http://video.morningstar.com/aus/video/ -- /video/transcript/1574 mailto: ?subject=Do SMSFs seek advice?&body=http://www.morningstar.com.au/video/story/1574 Super changes and SMSFs
-- Super has been tinkered with yet again but what are the implications for SMSFs? Super changes and SMSFs Julia Newbould -- http://video.morningstar.com/aus/video/ -- /video/transcript/1567 mailto: ?subject=Super changes and SMSFs&body=http://www.morningstar.com.au/video/story/1567 Beware capital gains tax on SMSF rollovers
-- Certain activities in running a self managed super fund can trigger capital gains tax liabilities. Beware capital gains tax on SMSF rollovers Darin Tyson-Chan -- http://video.morningstar.com/aus/video/ -- /video/transcript/1558 mailto: ?subject=Beware capital gains tax on SMSF rollovers&body=http://www.morningstar.com.au/video/story/1558 Avoid horrific penalties
-- The ATO is focused on excess contributions in SMSFs. Avoid horrific penalties -- -- http://video.morningstar.com/aus/video/ -- /video/transcript/1532 mailto: ?subject=Avoid horrific penalties&body=http://www.morningstar.com.au/video/story/1532 Insurance gets built-in for longer living
-- Lifetime income guarantee funds make sure your money won't run out. Insurance gets built-in for longer living -- -- http://video.morningstar.com/aus/video/ -- /video/transcript/1521 mailto: ?subject=Insurance gets built-in for longer living&body=http://www.morningstar.com.au/video/story/1521 ETFs for easy diversification: pioneer
-- ETF pioneer Jim Ross of State Street Global Advisers explains why these products are gaining popularity. ETFs for easy diversification: pioneer Tim Murphy -- http://video.morningstar.com/aus/video/ -- /video/transcript/1516 mailto: ?subject=ETFs for easy diversification: pioneer&body=http://www.morningstar.com.au/video/story/1516 Hefty tax for exceeding caps
-- What to do if you exceed the superannuation contribution caps. Hefty tax for exceeding caps -- -- http://video.morningstar.com/aus/video/ -- /video/transcript/1513 mailto: ?subject=Hefty tax for exceeding caps&body=http://www.morningstar.com.au/video/story/1513 Actuaries measure risks of ageing
-- The actuaries' role in determining risks and helping governments formulate economic policy. Actuaries measure risks of ageing -- -- http://video.morningstar.com/aus/video/ -- /video/transcript/1485 mailto: ?subject=Actuaries measure risks of ageing&body=http://www.morningstar.com.au/video/story/1485 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. Penalties for your SMSF's poor report -- -- http://video.morningstar.com/aus/video/ -- /video/transcript/1482 mailto: ?subject=Penalties for your SMSF's poor report&body=http://www.morningstar.com.au/video/story/1482 Ensuring your auditor is qualified
-- SPAA accredited auditors have now become approved auditors under the SIS Act. Ensuring your auditor is qualified -- -- http://video.morningstar.com/aus/video/ -- /video/transcript/1481 mailto: ?subject=Ensuring your auditor is qualified&body=http://www.morningstar.com.au/video/story/1481 Making the nest egg last the distance
-- -- Making the nest egg last the distance -- -- http://video.morningstar.com/aus/video/ -- /video/transcript/1478 mailto: ?subject=Making the nest egg last the distance&body=http://www.morningstar.com.au/video/story/1478 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. Keep your super in the family Darin Tyson-Chan -- http://video.morningstar.com/aus/video/ -- /video/transcript/1442 mailto: ?subject=Keep your super in the family&body=http://www.morningstar.com.au/video/story/1442 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. Penalties for your SMSF's poor report Darin Tyson-Chan -- http://video.morningstar.com/aus/video/ -- /video/transcript/1462 mailto: ?subject=Penalties for your SMSF's poor report&body=http://www.morningstar.com.au/video/story/1462 New TPD insurance regulations
-- -- New TPD insurance regulations -- -- http://video.morningstar.com/aus/video/ -- /video/transcript/1435 mailto: ?subject=New TPD insurance regulations&body=http://www.morningstar.com.au/video/story/1435 SMSF Reserves
-- -- SMSF Reserves -- -- http://video.morningstar.com/aus/video/ -- /video/transcript/1454 mailto: ?subject=SMSF Reserves&body=http://www.morningstar.com.au/video/story/1454 Will your SMSF pass these tests?
-- How Australian is your SMSF? Dire consequences await those funds that fail to meet requirements. Will your SMSF pass these tests? Darin Tyson-Chan -- http://video.morningstar.com/aus/video/ -- /video/transcript/1353 mailto: ?subject=Will your SMSF pass these tests?&body=http://www.morningstar.com.au/video/story/1353 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. SMSFs and gearing Darin Tyson-Chan -- http://video.morningstar.com/aus/video/ -- /video/transcript/1360 mailto: ?subject=SMSFs and gearing&body=http://www.morningstar.com.au/video/story/1360 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. Binding death benefit nominations Darin Tyson-Chan -- http://video.morningstar.com/aus/video/ -- /video/transcript/1368 mailto: ?subject=Binding death benefit nominations&body=http://www.morningstar.com.au/video/story/1368 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 The SMSF in-house asset rule Darin Tyson-Chan -- http://video.morningstar.com/aus/video/ -- /video/transcript/1371 mailto: ?subject=The SMSF in-house asset rule&body=http://www.morningstar.com.au/video/story/1371 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. Divorce and your SMSF - what you need to know Darin Tyson-Chan -- http://video.morningstar.com/aus/video/ -- /video/transcript/1373 mailto: ?subject=Divorce and your SMSF - what you need to know&body=http://www.morningstar.com.au/video/story/1373 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 1) Julia Newbould -- http://video.morningstar.com/aus/video/ -- /video/transcript/1375 mailto: ?subject=Trustee responsibility (pt 1) &body=http://www.morningstar.com.au/video/story/1375 Trustee responsibility (pt 2)
-- The second part of this SMSF discussion provides tips for trustees Trustee responsibility (pt 2) Julia Newbould -- http://video.morningstar.com/aus/video/ -- /video/transcript/1376 mailto: ?subject=Trustee responsibility (pt 2) &body=http://www.morningstar.com.au/video/story/1376 Not too late for super tweaks
-- Tax time is over but tax planning around super need not be. Clearview's Dante De Gori explains Not too late for super tweaks Julia Newbould -- http://video.morningstar.com/aus/video/ -- /video/transcript/1377 mailto: ?subject=Not too late for super tweaks&body=http://www.morningstar.com.au/video/story/1377 Maximum earnings and super contributions
-- Salary sacrificing? Understanding the 10 per cent maximum earnings rule is a must. Maximum earnings and super contributions Darin Tyson-Chan -- http://video.morningstar.com/aus/video/ -- /video/transcript/1382 mailto: ?subject=Maximum earnings and super contributions&body=http://www.morningstar.com.au/video/story/1382 Could ETFs benefit your super?
-- What you need to know about Exchange Traded Funds and retirement savings Could ETFs benefit your super? Nicole Manktelow -- http://video.morningstar.com/aus/video/ -- /video/transcript/1386 mailto: ?subject=Could ETFs benefit your super?&body=http://www.morningstar.com.au/video/story/1386 SMSFs and gearing
-- Administrative considerations with Andrew Biviano and Darin Tyson-Chan SMSFs and gearing Darin Tyson-Chan -- http://video.morningstar.com/aus/video/ -- /video/transcript/1405 mailto: ?subject=SMSFs and gearing&body=http://www.morningstar.com.au/video/story/1405 Trustee Education
-- Liz Westover gives her recommended changes to superannuation trustee skill and knowledge. Trustee Education Darin Tyson-Chan -- http://video.morningstar.com/aus/video/ -- /video/transcript/1424 mailto: ?subject=Trustee Education&body=http://www.morningstar.com.au/video/story/1424