Question of the Week

Noel Whittaker takes on Peter

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Question (Noel Whittaker): I totally disagree with what you’ve written. ASIC is extremely concerned about people being pushed into SMSFs by property spruikers and shonky accountants. Most people with SMSFs do not need them. To make it worse, they then email me all sorts of basic questions showing they have no idea of what they’re trying to do. Maybe you could publicise the fact that the penalty for getting it wrong is 46.5% of the fund’s taxable assets at previous June 30. If the fund had $2 million in it, and half of that was taxable, the penalty would be $465,000.

Answer (By Peter Switzer): Like you and ASIC, I am concerned about property spruikers and people with small balances going into property in SMSFs but you can’t seriously argue that there is anything wrong with someone with $700,000 in super using $200,000 as a deposit and borrowing $200,000 to buy an investment property with the other $500,000 in shares, term deposits and cash? If there is, please explain it to me.

By the way, there are piles of stock spruikers, bond fund spruikers and adviser spruikers, who lose piles of money for Aussies every downturn and where is ASIC then? Do I have to mention Storm? I wrote at least two stories on those so and so’s in the Telegraph and ASIC didn’t even contact me!

Thanks for your feedback mate but I don’t think SMSFs have to be afraid of manageable borrowings inside a fund just because of spruikers. As I say, if you think you can set me straight, I’m always happy to listen to someone like you.

One last thing – John Symond and Matt Comyn, head of retail at CBA, say the loans to SMSFs are small despite what newspapers say and I reckon they’d know.

Response (By Noel Whittaker): People are either pushed into self managed funds by accountants or by property spruikers – you may have noticed the papers are full of full page ads flogging units off the plan, which are often going to turn out to be duds. The secret to buying property is to look for an established property in a good location that is being sold by a vendor, who for some reason has an urgent desire to sell. To maximise profits, borrowing should be 100% if possible, and this should be in the name of the highest income earner. It’s a basic tax principle that you take a tax deduction sooner rather than later. Also, much of the alleged tax benefits of buying brand new property is negated if that property is bought in a low-taxed fund, such as superannuation.

The other type of people who go for SMSFs are the ones who panic when the market has one of its normal falls, and then say “I could have done better myself”, and in this situation, they’re usually only thinking of term deposits.

SMSFs are appropriate for people who want to own their own business premises, or who are skilled, experienced, DIY share investors, or who want to invest in the kind of investments that are not available on the approved product list of the big banks, who control 90% of wealth management in Australia. A good example is the Sentinel Property Trust in Brisbane, in which my own SMSF is invested. Their track record is brilliant but they are too small to ever be considered by any of the big institutions.

Second response (By Peter Switzer): Noel, some people are pushed into SMSFs by accountants and the property spruikers are a new thing, but there are a lot of rational people who have gone for SMSFs because they have been ripped off by old world financial advisers or poor fund managers or they simply know they can do better.

Also, a lot of new age financial advisers are listening to their customers and are delivering on what their customers want. The dominant platform world of the old days is withering because of an ordinary track record and the SMSF growth is proof of this.

I am all for blasting property spruikers out of the sector but as someone who built his financial advisory on doing it the honest way of charging a flat dollar fee, the SMSF development I see is a great thing.

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.

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