What types of superannuation accounts allow you to control your investments?

Welcome to Finance and Fury, the Say What Wednesday edition.

This week, the question comes from Andrew:

"Last episode you mentioned super and a product that lets you invest in third party platforms. Would like to hear more about that."

What is super?

Most people think of superannuation as just something your employer pay in to so that when you turn 60 you can access it. Even though your employer pays into super, that is your money! 9.5% on average don’t care and why would you right? out of sight, out of mind and decades away from becoming relevant. If you could log into your bank account and click a few buttons to save a few hundred dollars a year, would you? The real cost of super is opportunity cost – doing nothing now will hurt Any problem ignored long enough will grow – until it is too late Pay attention and make it work – don’t regret the future One thing I hear clients say all the time is ‘I should have looked at this years ago’ – regret is worse than effort

 

What are your options:

Super is a vehicle to invest funds for retirement – A car is a vehicle You can get a Mazda, or Mercedes but the aim is to get you from point a to b! Like cars there are different types of super accounts with different features Have many types – but major three types – Industry, retail or SMSF Industry Industry super funds are multi-employer funds (employer associations and unions). Investments - limited to around 10 multi-sector investment options (eg. Growth, Conservative, Balanced), limited insurance options Retail – Platforms for investments – can be for investments but also super A Master Trust is a superannuation fund in which a large number of members deposit their money. The trustee of the Master Trust pools the money together and purchases interests in the underlying investments, typically managed funds. The value of the investments of each member incorporates the fees, franking credits and some taxes from the underlying investments. WRAP account – External super trustee but you have control over investment decisions You get a cash account Then you select third party investments – Managed funds, Direct Shares, LICs, ETFs

 

 

Breakdown

Both types of accounts are operated by a trustee WRAP - the investor holds the underlying assets in their own name For master Trusts - Investments are held by a trustee in its name, on behalf of the investor Both Wrap Accounts and Master Trust May hold managed funds – but different type and flow through of distributions Wrap accounts have access to the wholesale managed funds pricing, as well as direct investments such as shares and term deposits Franking credits are distributed to individual investors through the cash account Master trusts allow access to managed funds but at a badged cost – incorporate fees into the unit pricing and take it out prior to passing on returns – similar to Industry funds Franking credits are incorporated into the unit price of the underlying investment How valuations work – and the costs for each of the accounts WRAP - The value of a member’s investment is determined by the underlying assets All fees and taxes are unbundled from the unit price and disclosed separately Master Trust - The value of an investor’s account is determined by the trustee based on the value of the underlying investments All fees and some taxes are bundled into the unit price for each investment and allocated to the investor Cash management and investment planning WRAP accounts - A cash account is used for each member through which income and expenses are passed An investor’s assets in a wrap account can be transferred to a new wrap account – in specie Master Trust - Income from the underlying assets is paid to the master trust and then distributed to members If you want to change to a different master trust you will need to sell your investments in your current master trust, which may result in a taxable capital gain or a capital loss, as well as other transaction costs

 

What are the advantages of wrap accounts and master trusts?  These administration structures are designed to provide different benefits –

Access to a wide range of investments including low-fee wholesale funds, plus any cost savings that may apply as a result of pooling a large number of investors’ monies Comprehensive and consolidated reporting and valuations for all your investments in the structure online access so it’s easy for you to keep up-to-date with your investments transparent fee structure so you know what is being paid on your behalf Biggest is the range of investments – having the direct flow through to your account rather than it being passed on at the fund level – flexibility in investment planning

What’s right for you?

Have larger sums of money to invest, Require access to direct investments and a very broad range of managed funds, want to be hands on and Want sophisticated reporting, Wish to benefit from franking credits being credited directly to their account. Industry – low options, standard based on risk profiles

 

What to do to make sure you make the most out of it?

Most important thing is to Pay attention – get the right investments Cars: You can have a Ferrari but if the driver (investments inside the account) is awful, the car may crash! Not getting to point B! Make sure your contributions are going in there Treat it like your own, cause it is – If you think you don’t have any investments, well you do in your super Managed funds are investments – just doesn’t look like it with industry funds

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