Susan Bower looks at the attractions of self managed funds and master trusts.
“LEAVE it to the professionals” has been the traditional and simple mantra for thousands, however, recent difficult market conditions and greater lay sophistication is outing those who have always felt some hankering towards flexibility and independence.
For those investors wanting more control over what goes where and to be managed by whom, a self-managed fund or a master trust could be the answer.
Master trusts are considered a convenient solution for those who have neither the time nor the desire to be making every investment decision but want to be able to swap between fund managers with reasonable ease.
PricewaterhouseCoopers director investment and superannuation consulting Catherine Nance said those choosing a master trust would also pay less in up-front and ongoing fees than with a regular retail fund.
“It gives them a wide range of professional managers at reasonable prices,” she said.
Those wishing to entrust their super funds to a master trust can do so with relatively small initial investments.
However, once an investor’s superannuation assets are around $100,000, careful consideration should be given to establishing a self-managed fund, Taylor Woodings Financial Services representative Nathan Omodei said.
Typically these funds have between one and four members and established by a trust deed, with all members trustees.
The tax benefits – a maximum 15 per cent on earnings – are a major attraction to operating this type of fund, rather than paying out capital gains and income tax on separate investments in, for example, property, cash and stocks.
Retirees can also draw an allocated pension from a self-managed fund. On a member’s death another trustee can be appointed.
As with master trusts, life, income protection, and disability insurance policies are also usually competitive compared to those tied to retail funds.
The downsides of this super option are considered to be the set-up and ongoing costs, the responsibilities of trustees and Australian Tax Office penalties for non-compliance.
Penalties can be equivalent to 48 per cent of the fund’s assets.
The cost for setting up a trust deed is generally between $200 and $1,000. Then there are the annual administration fees.
Mr Omodei said these could average between $1,500 and $2,000 for a one or two-member fund.
Trustee duties include formulating an investment strategy framework, record keeping and returns lodgment.
Out-sourcing of record keeping and returns is common and most funds also opt for regular portfolio reviews and ongoing strategic planning and investment advice.
Many funds also have a bank account and stockbroker account.
Self-managed funds are gaining in popularity, typically among family groups and Rice Kachor research predicts the current $100 billion in assets under management could triple within eight years.
