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SMSF and Your Business
Episode 6 - Your SMSF, Business and Beyond
Gemma Dale:
Welcome to SMSF and Your Business. In this series, we’re
talking about self-managed superannuation funds (‘SMSF’),
their advantages and disadvantages and strategies that are
designed specifically to allow business owners to supercharge
their retirement savings. In the last few episodes, we’ve
discussed property and super, borrowing and the small
business CGT concessions as well as insurance to protect you
and your family. In this episode we’re going to talk about the
wider business of running an SMSF and considerations to
ensure you’re getting the most out of your retirement savings.
I’m Gemma Dale and I’m the Head of SMSF Solutions at NAB.
As we’ve been discussing in this series, an SMSF offers an
amazing investment choice for your retirement savings. You
can choose to invest in property, cash, term deposits, shares,
managed funds and even tangible assets such as gold and
artwork. While there are rules around how you can use these
assets, today we’re going to discuss how to go about establishing
and even reviewing your investment strategy for your selfmanaged super fund. Today I’ve invited Meg Heffron, one of
Australia’s leading SMSF experts, to help us understand more.
Hi Meg, it’s great to have you with us again. So your business,
Heffron SMSF Solutions, provides establishment and
administration services to a whole range of SMSFs. Can you tell
me a bit about how that works?
Meg Heffron:
Yes, we’ve been providing services to SMSFs for about 15
years. We basically look after all the tax, compliance and
administration work for our clients, so they can feel
comfortable that their SMSF’s well taken care of and they can
just focus on the really important part which is managing
their investments.
Gemma Dale:
Right, so all of that stuff is absolutely essential. Most
SMSF trustees don’t set up a SMSF because they love paperwork.
So how many funds do you do this for?
Meg Heffron:
We do it for about 3,500 funds, including 1,400 that
are invested through NAB’s MLC Wrap platform. Sometimes we
provide those services on behalf of a planner or accountant.
Sometimes clients come to us directly. But they’re all united in
the view that they don’t like paperwork.
Gemma Dale:
Right, so with 3,500 funds that you look after, I’m
guessing you’ve seen quite a range of SMSF investment strategies.
Meg Heffron:
Yes we do see quite a range, from the really simple to the
very complex. And from those that just have one or two assets,
to those that are really fully diversified. Some change all the
time and some never change at all.
Gemma Dale: Ok, so you made a comment about seeing a variety of
different SMSF investment strategies. Let’s talk about the
investment strategy document itself, what does that look like?
Meg Heffron:
Yes, that’s right. All funds need that. And in fact it
doesn’t have to just be one. You can actually have different
members pursuing different strategies, and so have different
documentation for each one or even different accounts for the
same member, if the fund has for example some people who
are still accumulating their super and some who are in
pension phase.
Gemma Dale: So that document tells you what the fund can invest in?
Meg Heffron:
That’s right, so there’s no strict format that you need to
follow, but your investment strategy should really outline
what you’re trying to achieve and what your fund will invest
in to achieve that. So it’s entirely possible for a trustee to
decide that the fund won’t have any more than 10% in cash
for example, but it might have up to 50% in Australian shares.
Gemma Dale: Right, ok, and what if you’re not there yet? So you’ve just
started your fund for example and you’re hoping to be fully
invested over time but it just hasn’t happened quite yet?
Meg Heffron:
Again, there’s no fixed time frame. But your auditor
will want to know that you’ve got a plan to meet the
requirements of your investment strategy over time. And don’t
forget you can change it over time. So there’s no need to panic
if suddenly your plans change.
Gemma Dale:
Right, that’s helpful. What do you think business owners
should be thinking about when they put their investment
strategy in place?
Meg Heffron:
Well, all trustees are managing a vehicle that’s there to
provide for their retirement. So whether you’re a business
owner or an employee, your biggest goal is to invest in assets
that are going to provide you with the retirement you want. For
most people that will be a well-diversified portfolio of assets
that can give you a good income stream in retirement.
Gemma Dale:
So a lot a business owners as you know will invest in
commercial premises for their own business. How do you find
that works for a lot of your trustees?
Meg Heffron:
Yes, that’s quite a popular strategy for business owners in
particular and it can work really well. What we often find is
as business owners get closer to retirement, they start thinking
about how they’re going to sell down those properties so that
they can pay themselves a pension when their business income
eventually stops. Because, remember that the whole purpose of
super is to eventually pay them a retirement income. So in
terms of changing their investment strategy, they’d probably
start documenting the changes they would like to make and
then gradually reweight their portfolios to something more
liquid.
Gemma Dale:
So what sort of assets do you see as trustees get closer to
retirement?
Meg Heffron:
We often find that as trustees get close to retirement, they
tend to start holding a little more cash, Australian shares,
term deposits, managed funds and less and less direct property.
That’s obviously because they’re trying to make sure they’ve got
enough liquid assets to pay their pensions in retirement. We
start to see a little more international shares as they get more
accessible. Basically anything that’s easily more divisible and
gives them a good steady income stream to give people comfort
they’re going to get the sort of income they need when they’re
no longer working.
Gemma Dale:
So in some scenarios, trustees might like to retain their
property in retirement or they might find it just difficult to
sell. What do you see in that situation?
Meg Heffron:
What we often see in those situations is that trustees
might start diversifying early. So rather than waiting until just
12 months before they need an income stream, with one big
asset in their fund that isn’t going to be able to provide them
with a pension, we’ll often see trustees starting to move their
investment strategies 10 years out from retirement, so they’ve
got more exposure to direct shares, term deposits, managed
funds and so on - anything that’s liquid basically. Even if
they do want to sell their property, they can then take the time
to get a good price, and then review their investment strategy,
invest the proceeds to create that fantastic retirement income
stream that they’ve been working so hard for.
Gemma Dale: Thanks Meg, that’s really fantastic information. As we’ve
discussed across the series and again today, your SMSF gives
you a great opportunity to invest in the assets that you choose
for the retirement you want. It’s a big challenge, but there’s a
lot of help out there. If you would like to learn more, or to
speak with a specialist, you can go to nab.com.au/smsf where
you can find out more.