Eureka Correspondence

SMSF fees and returns, portfolio weightings, taxing the rich, and more.

Fees and returns for SMSFs

I note that the Eureka Report team are commenting quite frequently on super and SMSFs, such as Bruce Brammall’s recent piece SMSF money trail changes course and Alan Kohler’s recent weekend briefing that talks about super asset allocation.

Just a week or so ago I had my annual performance review with my current SMSF advisor. His company is linked to one of the big providers. In review the detailed performance of various investments which all seemed very good – you know, your various blue chips, resources and some other property vehicles. But we did not talk about fees.

Later when I reviewed his provided document I spotted that I had been charged over $4,000 in fees for the last 12 months.

I cannot believe that his investment advice could generate such a reward for him/his company, when overall my increase in total value is only just over 1%.

I have contacted him and he has said he will provide a detailed breakdown as to expenses and charges.

I am writing for advice on this as I do not want to create a dispute environment with him just yet, but can you possibly tell me or comment generally in a column if these figures could possibly be a realistic and fair charge for any investment advice – let alone what I believe to be “vanilla” SMSF administration and management?

I should advise that I currently work overseas and am not contributing regularly to this fund but have other investments at the moment.

MH

Bruce Brammall’s response: While I don’t know the time period over which this investment took place (was it calendar 2013 or FY13 or some other period – or even a 12 month period), a 1% return sounds abysmal, if it’s talking about a one-year time period. But returns depend on the risk that you’re taking with your investments and what you agreed to be invested in. That said, even all cash for those two periods should have returned more than 3%. Is the 1% return after fees? How much are they looking after for you?

If you were invested in a typical balanced fund, with 60% or so invested in shares or property (domestic or international), then the return for calendar 2013 should have been in the mid-teens, possibly before fees.

Regarding the fees of $4,000 ... you haven’t provided enough information to know whether this is reasonable or not. Some advisers charge on a percentage basis and some charge on a fee for service basis. So, whether or not this is fair is partly dependent on the sum invested and the level of service being provided.

Weighting Abernethy’s portfolio

In John Abernethy’s model portfolio why do we get what he has, how much it was bought for but no indication of the relative weighting of the sticks?

Name withheld

John Abernethy’s response: The stocks are not weighted so to speak. They were originally bought in equal weightings and there is no dynamic management of positions. When sold they revert to cash.

Taxing the rich

In regards to the article Taxing the rich – a global agenda, surely the problem is not the rate of tax that the wealthy are supposed to pay, but the lengths to which they will go to avoid, evade, miscalculate, deceive, and the means by which they achieve this.

Why don’t governments and law enforcement agencies get real about this? Why don’t they shut down these little pipsqueak countries which exist as tax avoidance entities? Why don’t they put the Bahamas, Liechtenstein, Jersey, Bermuda, yes even Switzerland, out of business? Could it be that the individuals who could shut them down are also the ones who stand to benefit from the services they offer?

Why not publish the amount that Gina Rinehart donates to charity? Why not legislate to enforce a ratio of CEO’s salary to the salary of the lowest paid worker in a firm?

Answer ... because they are not serious about doing anything. It’s all smoke and mirrors!

Peter Paige

Treasury’s attack on super

I have some problems with Robert Gottliebsen’s article Treasury hones attack on super. Just because one has an SMSF fund paying a pension doesn’t mean one should not have to pay tax. Of course tax is used in part to pay age pensions, so if one is not getting a government pension you might ask why should one pay tax. But age pensions is only one part of what tax pays for. What about hospitals, roads, trains, trams, buses, education, law enforcement, both white collar and traditional crime? These are just some of the items tax revenue helps fund. If thousands of Aussies pay no tax on earnings in their SMSF, where is the government going to get the necessary revenue? This country has had a tradition of progressive taxation, but that is becoming a thing of the past as tax evasion, cash economy, off shore tax havens become the norm. Robert, don’t you want a fairer progressive tax system?

Chris Miller

Robert, while most of senior Treasury do receive a defined benefit pension, many have managed their affairs to have another super fund for which they can take amounts from defined benefit schemes and contribute it to their additional one.

The other aspect you didn’t raise in your article is that they like our politicians get a 15% employer contribution and even those not on defined benefits get this level of contribution. If they had any sense of fairness they would be reducing this to 9%. Look for this sense of fairness to come in.

John Church

Dividend washing

We used this strategy for the super fund in 2012-13 year. We were advised by our adviser that it was safe and now I was advised by the Tax Office to resubmit a new tax return and they said it was dividend washing. Can you tell me if and when this strategy was outlawed?

RG

Editor’s response: The federal government has recently announced draft legislation that will prevent the dividend washing loophole by inserting a specific integrity rule into the tax law. You can find more information about how the legislation works on the ATO’s website. Eureka Report also alerted subscribers to the move in January this year in Dividend washing dries up.

Claiming franking credits

I have shares in a company that is offering a dividend reinvestment scheme. My super fund is in pension mode, so the fully franked dividends I would be foregoing would have tax advantages. If I accept the shares in lieu of cash can I still claim the franking credits? If not I guess I would be better off nearly always taking cash (subject to the level of discount in the buy dividend reinvestment scheme) and buying shares on market if they were attractive.

Editor’s response: Thank you for your letter. When you choose to participate in a dividend reinvestment scheme, the Australian Taxation Office takes the view that you have received a cash dividend and used it to buy more shares. As a result you are entitled to franking credits.