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SMSF trustees wise to spend more time on their investments

18th April 2017
SMSF trustees wise to spend more time on their investments
Sally Patten
Personal Finance editor
Fairfax Business Media

Self-managed superannuation fund trustees spend more time on administrative duties associated with their fund than they do on selecting investments.

A 2016 report by research firm Investment Trends and fund manager Vanguard found that trustee members spend an average of 3.3 hours a week beavering away on their investments, compared to 3.9 hours on paperwork, including record-keeping and compliance.

The finding invites the question: is this the right use of trustees' precious time?

Arnie Selvarajah, chief executive of online broker Bell Direct, thinks not. He argues it is costing trustees money and diminishing their retirement savings.

"Trustees should be thinking about getting the best return on their investments, which is not achieved by spending time on administration when alternatives are quite affordable," Selvarajah says, referring to a plethora of platform administration service providers on the market.

The Bell executive argues that whereas in the past dealing with accountants, online brokers, financial planners, auditors, administrators, platforms, fund managers, exchange traded fund providers, banks and insurers was time-consuming because they all had to be dealt with separately, times have changed.

Today a central provider can act as a hub to send and receive data between all parties. "Crucial information such as portfolio holdings, performance data and regulatory requirements can be automatically updated," Selvarajah says.

Administration platforms typically cost between $1000 and $2500 a year, which, would, say, equate to 0.5 per cent of a $500,000 portfolio.

"If trustees spent more time on their investments, they could get an extra 0.5 per cent, if not more, quite easily," Selvarajah says. Simply taking money out of term deposits and investing it in fixed income securities could lift the returns on that part of a portfolio to between 3 per cent and 3.5 per cent from 2.5 per cent, he suggests.

The shift, however would require research and it is also worth noting that nearly a quarter of those surveyed by Investment Trends and Vanguard said they did not have sufficient time to review and plan for their self-managed fund.

Other professionals agree with Selvarajah – to a point.

Some argue is it crucial that trustees understand their weak points and don't avoid the tasks they find harder or more troublesome. They also say that given the range of trustee responsibilities, administration can hardly be ignored or outsourced entirely.

Bryan Ashenden, head of financial literacy and advocacy at BT Financial Group, part of Westpac, says trustees need to ask themselves if they are spending an appropriate amount of time on each.

"Don't spend too much time on one or the other. If you are spending too much time on one, you should be thinking why," he says, adding that spending too much time on either investing or administration might suggest that professional support is required to help ease the burden.

Peter Burgess, general manager of technical services and education at AMP-owned SuperConcepts, argues that trustees can best use their time developing an appropriate investment strategy and ensuring their portfolio is in line with that strategy, which includes the asset mix and the fund's return objective.

"Trustees need to be sure they have a plan and are keeping that plan in place," Burgess says. "This includes reacting to investment markets, which might make rebalancing the portfolio necessary," he says, noting that action will also need to be taken when a trustee's circumstances change. A move to a super pension might require a more conservative asset mix.

Burgess also notes that in many cases outsourcing administrative functions to a third party provider can allow the trustee to sleep easier, given the sheer amount of paperwork involved and the penalties that can be incurred if administrative mistakes are made.

"You need to keep proper records and there are penalties that can be imposed on trustees who don't keep proper records," Burgess says. Failing to keep minutes of meetings, retain member reports, submit accounts and notifying the fund of "significant adverse events" can all attract fines, as can lending money to relatives and family members.

Catherine Robson of boutique adviser Affinity Wealth argues that spending more time on tinkering with a portfolio doesn't necessarily boost returns. She agrees that investors should spend time keeping themselves informed about investment markets, but is not a fan of regular trading.

"Good quality, value-for-money investments that you don't have a high turnover on is generally where you get good outcomes over the long term," Robson says. She tends to agree with Ashenden that trustees' time is best spent designing an appropriate investment strategy and asset allocation and thinking about risk management.

Members should be asking themselves if their portfolios are sufficiently diversified so that they can withstand price falls in one class of investments. "Trustees should not be thinking about short-term performance but long-term structural risks," Robson says.

Some experts say that right now trustees who will be affected by the forthcoming changes to the super rules should be spending more time than usual working on the administration front, given that there are potentially some big decisions to be made between now and the end of June.

Some retirees will need to decide which assets remain in a tax-free super pension and which will be transferred back to an accumulation account, where earnings and capital gains taxes will be applied.

Selvarajah argues that another advantage of using administration platforms is that they can provide tools to measure the performance of a self-managed vehicle. Almost one-third of self-managed fund investors use no performance benchmarks, he says.

"This suggests that many SMSF investors are unaware of how their portfolio is actually performing. Making the effort to embrace a digital solution can quickly pay off given the size of most SMSFs. It can underpin a heightened focus on investment performance, which can then be ranked against independent benchmarks, and alleviate the burden of administration," the Bell chief says.

But, says Robson, don't underestimate the importance of good administration.

"Make sure you know you responsibilities as a trustee and are discharging those responsibilities. Trustees must be responsible and not fully delegate," she says.

This article was first published on the Financial Review website.