Anne: Hello and welcome to Super Insider where we chat about what you need to know to make the most out of your super. I'm Anne Fuchs and I'm the Executive General Manager of Advice, Guidance and Education at Australian Retirement Trust. Now, before we begin the show today, I'd like to acknowledge the traditional owners of the land and waters where we're recording this podcast. And of course, it's important to remind you that what we discuss today is general advice only. So, you'll need to decide if it's right for you. Now, I'm really excited about our show today, because there is a lot of interest in this topic, this topic of self-managed super. We have our National Manager of Strategic Education at ART, Joshua van Gestel.
Josh: Hello Anne, how are you?
Anne: I'm really great because I'm really excited for our listeners because he has a really big brain, so much expertise and knowledge about SMSFs.
Josh: I feel like you're setting me up now.
Anne: I am setting you up, and rightly so, because you've got a lot of technical knowledge, but you're able to distil it into plain English.
Josh: Oh, thank you.
Anne: So that's what we're going to do.
Josh: So that's the challenge, and I accept it.
Anne: Plain English on self-managed super. All right, let's do it shall we brother? Let’s do it. So, okay, I'm going to fire questions at you.
Josh: Please do.
Anne: Okay. Considerations when it comes to self-managed super versus, you know, an ordinary super account.
Josh: I think a lot of people hear self-managed super and think, well, I did my own bathroom in the house, or I did my own renovation, maybe I can do my own super?
And I think a bit like renovating the house sometimes people don't actually realise that there's a lot more work to it.
Anne: And it's never on time or on budget.
Josh: Never on time, never on budget. You tend to make mistakes along the way, and a bit of expertise can be really important. So, the reason I say that in context of the question, I think one of the main differences between a self-managed super fund and an ordinary fund is at the end of the day when it's a self-managed super fund, it is DIY. At the end of the day, you're the one who has to do the work or pay someone to do that work for you. But ultimately, you're the one who's having to really be involved. When it comes to what you call the ordinary super fund, or a more typical super fund that people would have, then you've got the superannuation fund trustee who's doing that work for you. So, although there are other differences, I know we'll get into, I think fundamentally that's probably the key thing to start on.
Anne: Okay. And so do you think, too, is there something and it's, you know, purely subjective, I know but you go around the country, and you talk to all sorts of people from all walks of life with self-managed super funds.
Josh: Yep.
Anne: Is there something to do with Australia's obsession with property that plays into it? Anecdotally or not?
Josh: I think it is. I think it's actually a number of things, that there is this sexiness about, hey, I can get property with my super, but it's not that easy. You tend to see that fees for a self-managed super fund will start at about $2,000 and go up from there. So, people tend to realise that it’s more expensive than maybe I set out on. Secondly, when it comes to then the amount of work, I think people think, yeah, I’ll set up a self-managed super fund, buy property, whack it in and off we go.
Anne: She'll be right mate.
Josh: There's a lot of complexity.
Anne: When you say lots of work, maybe can we just a couple of examples of work, for someone who, you know here’s me, as you know…
Josh: Well, if you think about if we go right back to hey, I want a self-managed super fund, how do I start? There's going to be establishment requirements. You're going to have to set up what's called a trust deed. You're going to have to go through a number of processes, depending how you set up the self-managed super fund, even before it's running.
Anne: As a legal entity.
Josh: Just to get it operational. Absolutely. That's a lot of work, and it's usually work that you won't be able to do yourself.
Anne: Now, you'll have to pay a solicitor or an accountant …
Josh: …an accountant, or an adviser. The second thing is then, well, if you are going to go down the property line, just as an example, that well, you've got to go through the process of actually getting the property, getting the finance for the property, which is becoming a lot more difficult for self-managed super funds. A lot of the larger lenders have maybe become a little bit more reluctant.
Anne: Yeah, they've tightened up the rules.
Josh: So, there's that whole process, just like there normally would be with buying a house. But I think the third thing is, when it comes to property, I think people think, right I'll get my super and I’ll buy a house that I can live in, or I can rent out to someone I know. Again, it's not that easy. When you want to use your super to buy properties through a self-managed super fund, that's got to be what we call a business real property. So, it's got to be a property that's at arm's length and that is actually there really for a business purpose, and for driving investment income. So, I think for all of those reasons it becomes complicated before you even start.
Anne: And ironically, too, with an ordinary super - ordinary super invests in property too. It's not like property is not in ordinary super but…
Josh: And that is an important consideration. Again, when you talk about ordinary super, you think about Australian Retirement Trust. We would have tens of thousands of different property investments that our members are going to be exposed to. If you use all your money in a self-managed super fund to buy a property, you've got this very tight exposure to that one investment. But the comment I often make to people when they do ask, when I'm out on the road is what happens if you need to access some of your super? You decide you want to start drawing down an income, or maybe you need to make a withdrawal for some reason, you can't just sell the front room of the property. You can't just cut half of it off and get cash from it. So, there are broader considerations there as well.
Anne: I think also, too, maybe again, you travel around the country more than I do, the misconception that maybe there's probably less rules attached to self-managed super fund, you know?
Josh: So, once you've got that set up done that I mentioned earlier, when you're then doing the ongoing running of it you’ve got accounting to think about, you've got tax returns to think about, audits to think about, investment decisions. There's a whole range of things that you need to decide. Am I going to do this, or am I going to use an expert?
Anne: Because they are required by law.
Josh: Absolutely. And then again, when you're in an ordinary super fund, there's usually a recourse there. Large super funds pay a levy to government, and that levy ensures a government guarantee that in certain circumstances where there's a failure of investment, or a failure of fund, there is actually some recourse there for members. With a self-managed super fund that's not there.
But, Anne, can I also just highlight maybe another area that people often don’t think about when they go into an SMSF, is the end of it. Is there going to be a point where I actually don't want to have all that responsibility anymore? I want to pass that to someone else. And so very often people will have an SMSF that their kids might be in, or their spouse might be in, but it's also thinking about they might just decide they're tired of running it, of being involved. So there needs to even when you're setting up an SMSF, I think you need to be thinking about, well, what's my exit strategy?
There would be a lot of people that I talk to are in fact those people who recognise I'm now losing my passion for it or my faculties or I'm now starting to think about my retirement, or what happens next. How do I actually start to back out?
Anne: We, Josh, we had our Chief Economist Brian Parker, who I know you know well.
Josh: Yes, Brian is a dear friend.
Anne: Yes, on Super Insider talking about the current market volatility and just reminding our listeners about why diversification is so key to making sure you get a really good outcome when you finish your working life and a sustainable income at retirement. Diversification, diversification, diversification. Now, that sounds what I'm hearing you say is it's really much more challenging thing to achieve.
Josh: Oh, yeah. And I think a lot of what we say with self-managed super fund, we’ve talked about property, but a lot of people will invest in maybe the top 100 shares on the ASX, or they will invest in a really narrow range of assets. But it isn't providing that diversity again that I think people really need. The other thing I would say though, Anne, is that when people go into a self-managed super fund, my question to them would be, well, why are you doing it? What is it you want to achieve? And to you to your question, if I can go one step further, what performance do you expect? What benchmark are you going to use? I think very often people go into a self-managed super fund and if you ask them how it's performing, they don't know. If you ask them how it's performing against other super funds, they don’t know.
Anne: And how is that performing the cost of administration versus the real return of what those assets are generating after inflation, and fees, and all those things we talked about. What is the net return and how does that fit into a sustainable income in retirement?
Josh: Exactly. But I think it's also important, though, to acknowledge that there are going to be people, particularly those where I'd mentioned that half a million-dollar mark, there are going to be people, where it starts to become maybe something they can consider on that net return. But again, it's thinking about, well, if I've got half a million dollars to invest, I'm going need some expertise to do that. I'm going to need a financial adviser, or I'm going need someone to help me. So, it's really important that it's not just costs and returns, but it's also, who do you need to enlist to manage those?
Anne: And look, I feel like I'm being a bit of a doomsday, so apologies listeners for being the downer here. But I just, you know, you see it on the news. I'm thinking about the hidden traps and investing and the recourse if an investment goes wrong in the context of a SMSF, where someone sees an ad, and, you know, in their local newspaper about an investment that's generating a certain return, they put their money in and then it vanishes.
Josh: Yep.
Anne: And they don't see that money again.
Josh: Absolutely. And then again, when you're in an ordinary super fund, there's usually a recourse there. Large super funds pay a levy to government, and that levy ensures a government guarantee that in certain circumstances where there's a failure of investment, or a failure of fund, there is actually some recourse there for members. With a self-managed super fund that's not there.
But, Anne, can I also just highlight maybe another area that people often don’t think about when they go into an SMSF, is the end of it. Is there going to be a point where I actually don't want to have all that responsibility anymore? I want to pass that to someone else. And so very often people will have an SMSF that their kids might be in, or their spouse might be in, but it's also thinking about they might just decide they're tired of running it, of being involved. So there needs to even when you're setting up an SMSF, I think you need to be thinking about, well, what's my exit strategy?
There would be a lot of people that I talk to are in fact those people who recognise I'm now losing my passion for it or my faculties or I'm now starting to think about my retirement, or what happens next. How do I actually start to back out?
Anne: So, what do you think in terms of ART, Australian Retirement Trust, that’s similar to an SMSF for our listeners to think about? Considerations?
Josh: Yeah, I would say that people often don't realise how much investment choice they have. So, I think people should really explore the investments that they have on offer, the performance and the costs for those. And really weigh that up against, well, if I go into an SMSF, am I going to have that? That's the first thing.
Second thing, though, and probably the one that I would end on, is the biggest advantage, which you've already noted, of a more typical super fund to an SMSF, is that point of diversification. If I'm with a large fund, then that's going to give me access to a whole range of properties, a whole range of infrastructure, a whole range of unlisted investments.
Anne: And the scale benefits of fees that we're paying investment managers and what have you. Look, I think to, you know, obviously if you're interested in a self-managed super fund and you're wondering if this is something that's right for you, go to our website for more information, it's always a great place to start.
Josh: And we do have some great information on our website. But I think the other thing is don't go in blind. If you are wanting to think seriously about a self-managed super fund, that's great. But engage with an adviser. Engage with an expert that can actually weigh it up for you, rather than you just racing in because you think it's the next best thing.
Anne: And certainly, at Australian Retirement Trust we do have a panel of external financial advisers we can refer to, if that's what you're thinking about doing.
Look, Josh, it's been really fun.
Josh: Thank you for having me, Anne.
Anne: Oh, it's good, good. It's been a great day having you on the show. So, look, if you've enjoyed this episode and you think it might be of interest to anyone in your world, family or friends, please let them know about it. If you like this episode, please review it and subscribe to wherever you get your podcasts. Thank you for joining us today, viewers, and thanks Josh for being here.
Josh: Thank you.
