The pros and cons of taking the DIY super route

Can someone in the know pls advise, without liability nor prejudice. Thanking you in advance. I need to do a rollover from one smsf A to another smsf B. I know I need to use a SMSF messaging provider offering SuperStream rollover service. The ESA I use to make employer SG contribution does not have the rollover feature. Trawling the internet space, I found that myGov portal can also be used to initiate a rollover request. I will be doing only 1 rollover from smsf A to smsf B. Any comments pls ?

Financial advisors are becoming increasingly anxious and defensive by the proven ability of people to invest, grow and manage their own money. Despite ongoing attempts by the financial advice industry to claim indispensability, the growth and success of SMSFs shows that we have no need to entrust our savings to these fee and commission driven financial parasites. I run a family trust and a SMSF and take my spreadsheets in to the accountant once a year to handle tax returns and company statements. A mixture of 20 shares/etfs/hybrids in each and now a growing income stream that exceeds what I once earnt as a full time salary. Plus I enjoy the mental stimulus.

Could someone please enlighten me.Australian Super offers DIY called member direct
which supposedly allows you to invest in shares of your own choosing.My question is
who owns the shares the member or the fund.I did phone them but was given the right royal roundabout which left me none the wiser.

UBS hold the shares as Nominees

The fund owns the shares not the member. Consider the following.
1. If the shares are entitled to a rights issue, the fund as the owner collects those new shares, not the member.
2. If the shares are entitled to franking credits, the fund pays them to the members account on the same day as the dividends are paid. If the member were the owner, the franking credits would not be refunded until completion of the tax return at the end of the financial year.
3. If the member has insufficient cash to pay a mandatory pension, the fund will sell some shares the member thinks they own, without their knowledge or consent.

Member direct is designed to fool members into thinking they are the owners of these shares. It is a facade.

Thanks Jack.Very helpful

Member direct options aren't designed to "fool" anyone into anything. All the information about share ownership, rights issues etc. will be available in the accompanying documentation for the fund. That documentation would be the place to source this information.

If you're considering opening a member direct super account and you don't read all that documentation, then you probably shouldn't be opening a member direct account.

Thanks David.

I'm so over all the FirstLinks readers who make snide comments like that about super funds. I know many, many people in the industry - mostly as competitors to my Fund, but usually they've been colleagues in the past - and they are all seeking to run their Funds in the best interests of their members.

Member direct allows members to “dabble” in direct shares within the confines of an APRA fund. If the member wants to do more than dabble it means they are limited to the range of shares designated by the fund, they take full responsibility for investment decisions and investment outcomes and they still pay fees to the fund. But the whole point of using an APRA fund is that the member doesn’t have responsibility for investment decisions or legal obligations.

The fees are substantial. A super balance of $1.5 million, with an annual fee of 1% means the first $15,000 earned by your investment decisions in member direct belong to the fund. I run my SMSF for a tenth of that.

Member direct is designed to allow members to dabble in shares and allows the super fund to keep their funds under management which generates the fees. That is always the primary goal.

Re: Jon Kalkman's comment

I have a $1.2m-ish member direct fund in pension mode. Last FY I paid $2,231.14 in fees, total, including expense recovery - that's 0.19% in fees. I can invest in any share in the ASX 500 and pretty much any ETF as well. And I only invest in direct equities and ETFs. There may have been 3 or 4 x $20 brokerage fees in there for purchases as well. embedded in the price of the purchase.

"Dabbling"?

I find it difficult to believe when I hear it is difficult to have SMSF.
After 23 years it has been really straight forward. I have purchased & sold a business office & simply invested in various ETFs that have suited my risk level & never sold them.
As I turned 65 recently I did think maybe I should simply close my SMSF & put it into an industry fund.
When I did some research on what all the fees & charges were (very difficult getting that information!) they were way more expensive than my SMSF & that includes all my accountant, auditor fees etc
Anyway, that has been my experience.

A useful feature of an SMSF over APRA funds is that the cost of running it (often a fixed amount) reduces as a percentage of the balance as it grows.

I am a trustee of my smsf. and I am thinking of making the smsf fr Accumulative phase to Pension phase soon. 100% of smsf assets to be in pension phase , so it will be considered 100% in retirement phase later this financial year ( not entire financial year. I know I can segregate the shares which have unrealised loss and treat them as in accumulative phase, but I rather not do down the path given the record keeping etc ).
I would like comments from those in the know, without liability nor prejudice, pls. And I thank you in advance.
This smsf has unrealised cap loss and unrealised cap gains right now.
1) when in pension phase, all realised cap gains are not taxable. I am clear with this. Hence, any realised cap loss is 'wasted' in pension phase, for there is no taxable cap gains for the cap loss to 'offset'.
2) whilst in accumulative phase, is there wisdom to realised the cap loss and cap gain, so that when i make the smsf pension phase, there is minimal unrealised cap loss ? In my mind, if i realised the capital gain whilst in accumulative phase ( former ) , I have realised cap loss to offset the gain. If I realised the cap gain in pension phase (latter ), the realised gain is not taxable. Whether former or latter, this cap gain in not taxable, but in former you have the ability to reduced the unrealised cap loss.
3) those shares where there are unrealised cap loss, I dont think they will recover within 5 years and they dont pay div

Hi mike, all that you have stated is correct. The only suggestion that I would make is that the capital losses are not 'wasted', they simply carry over year after year even though no doubt they will never be applied while all members are in pension mode. But they will still exist.
You could in the future, however bring in a new member who is not in pension mode, then the losses carried over would be useful to offset future gains for the new member with income (including net capital gains) being apportioned according to an annual Actuarial Certificate.
I too have just been through the same situation. Best to also start realising the capital gains in the portfolio while in pension mode tax free before some smart Govt official changes the rules in Super again, maybe even relating to the rules for members with over $3M!
Good luck with the change to pension mode, much better having the funds completely tax free!

Bravo and thanks Mark B.
Getting a family member to be a new member in the smsf at accumulative phase, then the new member has this big bucket of unrealised cap loss against which to offset realised cap gains.
Splendid.

I have had my SMSF now for 31 years, retired 12 years ago, and was self employed for 47 years, I regularly out perform the big Funds, at 81 years of age I still think that I am more interested than anyone else to look after my money, I read a lot, have a couple of daily newsletters, usually spend an hour or 3 most days reading and investing. I have minimal expenses, an Auditor, and Accountant for the tax return, and still see no need to have someone manage it for me. Eventually I will put it all into cash, easier for my family when I am no longer "above the grass"

July 28, 2024
I fully agree with you. Coincidentally my name is also Bill. I am also 81 and I was self employed for 40 + years. I also intend to (soon) put it all in cash. It pretty much is now and has been for 20 years. I suppose I may have done better if the cash had been invested in other "things" but looking back cash and compound interest has been very kind to me. Cash investments has also reduced stress something that also compounds with age.

Unfortunately Bill you've had an investment shocker.

You would have done better in an APRA conservative fund. You might feel safe and secure but your returns have been horrible in comparison and you now have much less money than you otherwise would have.

"Self Managed" was the key motivation to leave UniSuper in 2021 as I could no longer agree with their wisdom.
Communications heralded low rate environment, inflation signs were "transitory" and the renewables revolution.
Shook my head at their forecasts. Called accountant & set up SMSF. Constructed for inflation & diversified well.
Beaten all the Industry Super returns past 3 years. And in 2023/24: 20.5%

That's is amazing returns and do share your wisdom with others. Any recommendations?

Hi Barry,
just an opinion but diversification is main key.
Stop losses on dogs (admit wrong at below breaking price chart major supports) & hold the winners.
15-20 positions (all listed on ASX) including larger ETFs, mostly USA focus, and stocks I like.
Got lucky on winners last year with Wisetech, Telix, Gold (Newmont) & USA big tech companies.
More boring parts of portfolio made 7-10% e.g., VAS etf.
Humbly next year I might have a kennel of dogs but trailing stop losses help me sleep.

I have managed our SMSF quite successfully for 21 years with some training but no background that may be seen as relevant. We choose to invest predominantly in Australian listed companies that have overseas exposure. Sure, we have made some mistakes but at least we own them and we're not paying professionals to make similar mistakes. There's a saying that's gone around: 'it's the fund managers that own the yachts, not the investors.' The reality is, if you have the right personality, are half smart and are prepared to apply yourself, investing successfully is not a dark art. Contrary to what the pros repeatedly like to tell us. Along the way we have also invested in a range of international and domestic managed funds. The outcomes have been disappointing across the board. In every case! Fund managers make brave claims as to performance but invariably fail to provide their stellar (or even modest) returns with any consistency. Regulations do not encourage fund managers to strive for out performance and so all funds revert to the mean over time. Reason one for going down the SMSF route. Another that no one has mentioned as yet is the considerable satisfaction derived from managing our super and by default, our future. Great for our sense of self and great for the brain too. Time Cost? I confess to enjoying much of the journey and so I invest more time, clearly, than someone paying others to do the work. But when you're investing in your future and you derive satisfaction from the effort, the time cost is not an impost. And our accountant's fees also represent value when I compare the costs professional managers charge and then of course, fairly regularly fail to perform. With luck, one day I'll be too old, or it may become too much work, but we have a Plan B.

What does SMSF capitals stand for?? Self Managed Superannuation Fund. That means you ...yes you.. manage it, No! you do not let someone else to manage it. Need advice? Pay someone but better yet join the (NTAA) National Tax Accountants association as trustee of your super fund and attend seminars on super and tax law. Why? Not to be a bush accountant or fly by your pants solicitor but for when you go and get advice you can sort the wheat from the chaf.
I lost count how many times when I approached so called advisers they were enraged that I did not want them to manage my investments but rather they were angered I just wanted to pay for genuine advice. The best advice came from lawyers and accountants I exchanged views with over lunch at the NTAA seminars.

We closed off our fund when I was 65, why? because I realised it was getting too complex the rules keep changing and I could also see the industry funds and their mates the labor party were out to screw SMSF's. Example? Taxing unrealised capital gains.

Occassionaly I go down memory lane and review some of my investment notes and long term plans we had drawn up. I am amazed that was us but father time eventually catches up with you. We put it into a small business that we control and our adult siblings watch over us and guide us.

Unfortunately Pareto's law (The 80/20 rule) also also applies to SMSF's. If you do not drive it you do not control it.

I have a few questions, those in the know, I would appreciate your comments, without liability nor prejudice.
I have this smsf and I am the trustee, i am the only member of smsf and I have retired, age 63. It has say 1.5m and I will convert it to pension phase soon. So the capital to support this income stream is 1.5m. I have trawled the ATO pages and it says one cannot increase this capital supporting the income stream later via contribution nor rollover ( from another super fund ) So this pension / income stream is stuck with 1.5m ( even though the transfer balance cap is $1.9. this FY 2025.
I also have a super with an industry fund, in accumulation phase, I want this to be in accumulation phase so that shd i work part time later on, i have a super fund to contribute to. Say when i am truly not interested to work anymore, say this super has 100K, do i start another brand new pension phase with this 100K ( as I cant rollover this 100K to my smsf ) ? This leads me to having 2 income stream. Is that possible ?
Thanking in advance those who comment.

Yes you do, and yes it is possible.

Who knows, by the time you get there, perhaps the rules on contributing to pension-status accounts may have changed? What you will do, when you make the plunge to retirement mode, is crystalise your personal transfer balance cap amount. So if it's $1.9m when you do it (as it is currently) then it's $1.9m for you permanently - so you can only ever put another $400K into it, irrespective of what happens to the transfer balance cap maximum limit in the future. Now what happens to the balance afterwards doesn't matter, but the cap to transfer in will be set for you. There are other wrinkles as well. The ATO has a bunch of info on this.

Something to think about.

It is possible that a Mike's personal transfer balance cap can rise thanks to CPI, but it may only rise proportionally.
The current General transfer balance cap is $1.9m.
If Mike starts a retirement phase income stream (such as an account based pension) today with $1.5m then his personal transfer balance cap is $1.9m, and his remaining cap space is $400k.
Assume the general transfer balance cap increases by $100k to $2m in July 2025 (as predicted - and thanks to CPI).
Mike's personal transfer balance cap (PTBC) will also rise, but only in proportion.
Mike has used up approx 79% of his PTBC ($1.5m/$1.9m) so only 21% of the $100k will be added to his new PTBC from July 2025, and his new personal transfer balance cap should be $1.921m ($100k x 21%).
Note that I use words like 'may' and 'should'. Results can vary depending on commencement dates of these retirement phase income streams, and weird things called debits and credits.
These transfer balance caps started in July 2017. Craig Day from CFS wrote some excellent articles to try and explain the new rules. The ATO website is also mandatory reading.

May I ask James and others further questions. Your comments are without prejudice nor liability.
( the longer a smsf is changed fr accumulative to retirement phase, the more tax it will have to pay because of soon to be paid dividends and more interest income, assuming 50% in equities, 50% in cash, term deposit ).
James, transfer balance cap is determined using mkt value of equities and rest of assets. So it is best to commence retirement phase stock prices are down/south. So there will be more room / space left in the personal transfer balance cap ?
Others, given the super guarantee 11.5%, salary sacrifices, co contribution etc, industry funds and smsf will have a lot of cash. If every trustees & members , opt to have their available funds not put into cash/term deposit nor direct property, but just into equities/shares, there will be this huge demand ( shares are finite unless you have ever increasing IPO, share rights issue, etc ), There will be some who will move from shares to cash, but let us assume there is this overwhelming demand and the supply is say inelastic/finite. The share prices, especially blue chips, will go up long time, barring unexpected swans ? Trustee, members & professional funds will be bidding for shares for they have to move out of cash ?

The sad fact is that these days most people don't need an SMSF to do what they want to do.
Unless you have complex estate planning needs, or you want to buy and investment property (with or without lending) there are any number of platforms out there that will let you do what you want and more than likely the fees will be cheaper. You don't always need an adviser if you want to DIY (some platforms may require, or you may get slightly lower fees or more tailored investments if you use an adviser) but advice is not compulsory. More importantly you also don't have all the risks and compliance obligations that come with being a trustee.
I think SMSF's are a great vehicle for some, it's just that many people get sucked in by hearsay conversations with friends or acquaintances or worse, facebook, where the pitch is you can make big bucks with an SMSF that you can't elsewhere. The reality is mostly you can do the same good or bad investments elsewhere with the difference being that there is an independent trustee who generally has some guardrails to protect you.

The fees i pay to the accountant are way less than the cut "North" demanded on my balance for the privilege of offering me a limited choice of investments through their portal. Add to that a failure to offer any advice whatsoever, leaving it to a FP who wanted another 1% plus and you eventually realize the system is not working in your favour. Simple Index funds with low costs purchased through a low cost admin system ($79 a month is peanuts) are the path to wealth. (Thanks John Bogle). Also simple enough to follow well into your 80's. Keep it simple and out of the hands of the "professionals"

Due to the extra work involved in running an SMSF I believe it is essential that people benchmark their SMSF return against a quality APRA fund. In order to do this properly you must first establish your risk profile so that the comparison is with the appropriate option. After all, if you are not consistently outperforming then what’s the point?

In my view the single most useful feature of an SMSF over APRA funds is that it allows trustees to fine tune their risk/return profile on the fly particularly when invested in highly liquid assets such as shares. There comes a point when preservation of capital becomes more important than outright returns. I am always reminded of a neighbor who complained that he "lost half his super" in the aftermath of the GFC just as he was approaching retirement (unfortunately he never regained the lost super and succumbed to cancer a short time after retiring). Assuming a healthy balance trustees have the option to switch to cash and other low risk investments as they approach retirement thus avoiding the risk of losing significant savings in their final years.

People losing a portion of investments close to retirement age is common. It's common because financial markets are orchestrated to turn negative. Western governments and the economy don't want lots of people retiring. Orchestrated financial calamities means delaying or even stopping retirement plans. Keeps us working for the greater good. Economy needs its worker ants.

Whilst an SMSF does provide you with that control opportunity, if you're investing in standard investments - shares, managed funds etc. - then any of the DYI super fund options offer you exactly the same opportunity for way less money and admin.

Well said Michael F. Benchmarking investment performance (after all fees) against an APRA regulated fund with a similar investment asset allocation is something that many (most?) SMSF trustees are loathe to do. This is because it requires effort and will likely explode the myth that managing their own retirement savings brings about better investment outcomes. The basic truth is that for most people, an SMSF is an expensive hobby and they would be far better off in a APRA regulated fund with the investing being done by professionals. But that would spoil the story wouldn't it?

Wow David Wilson there are a lot of unsubstantiated claims in your comment, none of which have been my experience with an SMSF for over 20 years. Our SMSF has clearly beaten the Australian Super High Growth performance (an easy number to find so not much "effort" actually) over any period longer than 3 years.

An option worth considering is an APRA regulated Super Fund that permits a degree of flexibilty and control for the member that exceed the more popular options that are mentioned most commonly in the media. Personally I like the idea of allocating my investments consistent with my investment strategy and rebalancing on my schedule. Also the option to choose Term Deposits, invest in AUS shares and ETF's (including Fixed Income) directly and avoiding the hassle of audits and administration of a SMSF is worth considering. Yes, there are no options for investing in unlisted commercial property or artworks etc. and selecting a low fee fund is critical - but it is an option that may suit individuals wanting more control over their investments.

An important issue is the capacity of the person administering the investments as they age(I write as an 86 year old) An AARP study in USA found that an early sign of dementia is inappropriate decision making (particularly financial) Should a mental acuity test for decision making be introduced for trustees of SMSF?

Thank you Richard,
This is the "elephant in the room" for me. It is easy to see why people fall in love with SMSFs during accumulation phase (tax concessions, the aspect of control, etc). And , of course, financial advisers love to promote these attributes. As we age, it is just as easy to see how the initial lust starts to wane.
On a separate issue, I would have thought that most people understand that superannuation is a wasting asset in retirement. The tax concessions tend to hide that reality. Leaving tax aside, why hold illiquid assets in a vehicle that in pension phase imposes mandatory withdrawals that over time will exceed the income return generated from the asset? When that inflection point arrives, it may not be the most opportune time to sell. Good luck!