Question: We have recently set up an SMSF and are in the process of rolling funds over from other super funds. We are small ($350,000) and are managing investment activity ourselves, until we are large enough to gain economies of scale from external management.
What sorts of factors should we consider when deciding on a traded investment facility for stocks/ETFs/bonds – broker or online share trading? We are looking at Shaw and Macquarie for the former and the major banks for the latter. Do you have any recommendations in either category? What are the pros and cons of both?
Answer (by Paul Ricakrd): In terms of whether you use what is described as a “full service” or “online” broker – it really comes down to whether you want to pay a higher price to potentially access the expertise of an adviser or not. In other words, does the adviser add value to the transaction? The “services” (apart from the advice as to whether to initiate a transaction) are now pretty much the same.
Typically, advisers tend to work very independently. While the “house” (i.e. Macquarie or Shaw) adds some value through the provision of research, under continuous disclosure, research, information and ideas are freely shared in the market (there is very little “proprietary information”). So it largely comes down to the expertise, experience and judgement of the individual adviser. I don’t think it is possible to recommend Shaw over Macquarie or vice versa – it really depends on the individual adviser.
Typically, advisers display “more interest” in clients with bigger portfolios –they can charge a larger flat fee, or there is more brokerage. Most smaller clients tend to trade online (via CommSec, Westpac, Bell or Nabtrade etc), and it is even common for clients who have an adviser to also trade online.
Given that you plan at some stage to access external management expertise (who will have their own preferred broking arrangements), and at $350,000, you are a relatively small fund, my sense is that you will probably be better off using the services of an online broker. A critical consideration in choosing an online broker is the arrangements around settlement: Do you need a particular bank account? What rate of interest is paid? How easy is it to access etc?
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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