SMSF Trustee Strategy Day Roundtable

At the recent SMSF Trustee Strategy Day, held at the Sydney Cricket Ground and hosted by Morningstar, a panel of SMSF trustees revealed why they’ve chosen the self-managed route, their strategies for success, and how they engage with practitioners

Tell us about your SMSF – what phase is it in and what are your strategy tips?

MATTHEW JONES: I specialise in US stocks and I also run my own super fund. The members of the SMSF are my wife and I.
We've been running it for five years in accumulation phase and we have a corporation set up as the trustee … We put some life insurance through the funds as well because we have a mortgage on the house at the moment. How [do] I structure the fund? It's all about growth really.
I'm trying to plan for my retirement, so I’ve calculated how many assets I need and how much wealth I will need to retire, taking into account inflation. Now I’m just working my way towards that.
My tip would be to have a strategy. My view is that if you are running the super fund, you are running a business, and businesses without strategies fail. You need to decide an asset allocation mix. You need to decide what your objectives are, what you are trying to achieve and then how you are going to do it and the risks.
[You need] to do everything a business has to do. Look at revenue, look at expenses, and then start going down through it ... People often come to me and say straight up ‘What stock do I buy?’ That needs to be the last question in your strategy. The first question is objectives and the second is asset allocation.
Why do I have an SMSF? Firstly, being self-employed there are many benefits that a super fund could offer me. And secondly, being in the industry, I think I can out perform everyone else.

CAROL LIMMER: I'm a member of the Australian Shareholders Association and I do, on a voluntary basis, monitor companies for them. That involves going along to regular training and meetings with other monitors.
As far as my super fund is concerned, it's in pension phase. I have it with my husband, so we're both trustees of the fund.
In terms of strategy, I agree with Matthew. Have [a strategy] but also regularly review your strategy ... each year, go back and consider your situation and the market environment and [consider] what you think the future may hold, and then [you may need to] change your strategy.
One thing we changed recently was [related to] the number of companies in shares that we had in the super fund ... we had lots and lots of them that we'd gathered up over time, some with a bit of sentimental value. So we decided … let’s get rid of some of the little rats and mice from the fund.
Now our focus is better because we’ve got a smaller number of companies in that share portfolio in the fund. We also have a fair amount of cash in the fund for a bit of security, and we have a fair amount of property outside the super fund.
We keep our eyes open for things like [bonds] – they’re coming more into focus.

SANDY MORGAN: I've been running an SMSF for probably 20 years. Why did I go down that route? I originally worked in the stockbroking industry in 1969 and I got thrown out of it in the early 70s, when the market went down.
I’ve always been an investor in shares, and in the 90s I was working for a fund manager ... I thought, ‘Why not go down the SMSF route?’ I was confident enough that I could buy and sell shares and buy and sell property as I wanted to.
I was confident enough in my own decisions, and I think if you're going to run an SMSF, you've got to do your asset allocation so you're comfortable with it. Don’t get into something that you're not comfortable with.
I’ve probably got rather an eclectic portfolio – the emphasis is more to growth I think. I’ve got a bit of low volatility stuff like property and also some shares and investment unit trust funds.
Other than that, I've got art. I bought a little bit of property but not much ... I've got a rural property. While I’m mostly exposed to Australia, some of the listed companies I’m invested in [have] operations overseas, and I [also] have some exposure to the international markets.
The thing that I like about [SMSFs] is you can follow your own stocks. I'll trade them if I think the time is right. I'll buy shares, I'll sell shares. I'm in my pension phase and I’ve been very happy with growing my own superannuation fund.

TIM WEDD: [I’ve been in the industry for] 28 years. [I am] working with Crystal Wealth partners, which is a private wealth management and advice practice in Sydney.
In terms of the structure of [my] fund, it's what I view as a prime family wealth vehicle ... If I died, my wife and my three kids could continue running with the fund.
It’s an accumulation fund – it has all the insurances I want in the fund and it has growth, [although it is not] quite as aggressive as Matthew’s.
In my case ... it’s a more balanced growth focus. So it's about 35 per cent [to] 36 per cent in cash and fixed income assets, 30 per cent in Australian shares, and it's got a good exposure to international [markets], which is something that I’ve been keen on for a few years now – it’s got 25 per cent [to] 26 per cent in international.
It’s got a little bit of listed property and … what I call general ‘other’, and no direct property. I hold direct property outside the super fund, so I’m happy to focus on a different asset allocation inside the fund.
Before I even think about the investment – how I’m going to implement it, what it looks like, what its characteristics are – I first [have] a good look at where I am, and it changes over time.
Why do I have an SMSF? I’m a control freak ... I’m quite happy to be the one that wears the can if I make a bad decision – that’s what it means to be a trustee in your own fund.

Is it sensible and appropriate for an SMSF to have managed investments?

MATTHEW JONES: Managed investments are another asset class. When I run my fund and do my asset allocation, for me, it’s all about trying to bring the correlation of my assets down. Even though I’m basically in stocks, I also have a bond section in my portfolio because traditionally, they’re negatively correlated.
If I can find some managed funds to bring some negative correlation to the rest of the assets, I would definitely add them in.

CAROL LIMMER: All of mine are actually direct, but I can’t see anything wrong with people having part of them being in managed funds. It adds some diversity.
SANDY MORGAN: I’ve got exposure to a bit of managed funds. But typically, I’ve got it through property. I've got it through hedge funds and those sorts of things. I’m not going to sit there and try to run my own hedge fund within my super fund and try and run a property portfolio – I don’t allocate a high percentage of my assets to those sorts of asset class.

TIM WEDD: I think it’s horses for courses.
The thing we've seen when looking at managed funds is there's hundreds, or probably thousands, of managed funds out there, and the trick is to find that two per cent that are actually adding the value for you. That’s where you need the research or the advice in order to work out which are the funds to deal with.

Do you obtain advice for your super fund, or do you do it all yourself?

MATTHEW JONES: I definitely use advisers, particularly in the compliance area – it’s not my strong suit. So [I definitely look] for someone who can help me in that area, and even in investments, as I don’t know everything about every investment.
I outsource my administration. The last thing I want to do is start entering details in to some spread sheet or some accounting software. In this day and age, there's [a] massive compression of fees happening in the administration area, so you'll find there are lots of services out there.

CAROL LIMMER: Going back in time with our super fund, my husband had it by himself. Back then, he used to do most of it on his own, but it was becoming quite a bug bear for him. I was in an organisation where I actually looked after staff superannuation, so I was in a corporate fund, quite a large one.
I appreciated the value of having advisers in various aspects. So we moved to having advisers in a number of areas in relation to our own super fund. The trick is, I think, getting people you can really trust.

SANDY MORGAN: I outsource everything, except I typically make all the investment decisions. That works for me and it seems to work for the Australian Taxation Office (ATO) too, which is encouraging.

TIM WEDD: If there's a specific tax question and we need specialist tax advice, we get that. If we need legal questions [answered], we get specialist legal advice.
So the idea is about focusing on the objective of what you're trying to achieve, and then [considering] what the best tools [are that] you can bring to the table to make it work together. I could [do it myself, but] I think I can find better things to do with my time to get the more efficient outcome.
So I’ll focus on the investment aspect and I’ll be the driver on the investment committee. I’m quite happy to have other professionals and engage other professionals on the investment committee, and therefore we can make a better investment decision at the end of the day.

Once the fund moves from accumulation stage into the pension phase, should there be a change in the nature of the portfolio?

CAROL LIMMER: I think it really depends on the individuals but generally speaking, when you go into pension phase, you do tend to be looking a little bit more conservatively at your fund and also hoping you're going to get a good regular income ... that’s going to last as long as your life.

SANDY MORGAN: I’ve tended to put my money into low volatile investments … so instead of the prices diving all over the place, they tend to be pretty stable. Going forward, I’m tending to head in that direction. So if I get out of the equity investment, I’ll probably move into a less volatile investment.

What do you see as the minimum balance you need to justify having an SMSF?

MATTHEW JONES: The minimum to justify an SMSF comes down to a few factors. Number one is the sheer cost – the straight administration cost of the fund has got to come into consideration. Number two is [the amount of work] involved.
Just because you’ve got a certain amount of money, that doesn’t mean that an SMSF is suitable for you. I see a lot of people that shouldn’t have one, but it’s a personal choice. I’d be reluctant to put a dollar figure on it because I think the other factors are a lot more important.

What are your views on corporate trustees?

SANDY MORGAN: I've had my fund for nearly 20 years. In those days, basically all [trustees] were individual trustees ... The corporate were a bit more expensive and a bit more cumbersome, so I took the easy route.

CAROL LIMMER: In more recent times, we actually did set up a corporate structure. We didn’t have to do it, but we’ve got it there so it gives us a bit of flexibility for the future, in case we want to use that particular structure.

MATTHEW JONES: I set up a corporate trustee at the beginning but I never needed it. I did it ‘just in case’, [for] the future.

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