Industry funds can be a great solution, particularly when you are starting out. But life doesn’t stand still and neither do your investments.
Your balance grows. Retirement gets closer. Your family position changes. Tax becomes more relevant. Estate planning becomes more important. The questions you need answered in your 50s or 60s are often very different from the questions you had in your 30s.
When we review super with clients, we are not asking whether their current fund has been “good” or “bad.”
We are asking a more important question: Is your current super structure still right for the decisions ahead?
If you are approaching retirement, the questions become more specific.
- What are you actually invested in?
- How much risk are you taking?
- Where will your pension payments come from?
- How are tax outcomes being managed?
- What happens to your super if something happens to you?
It can make sense to consider whether a different structure, such as a wrap platform, could better support what you now need from your super.
How an Industry Fund and a Wrap Platform Are Structured Differently
With many industry fund and master trust arrangements, members invest in pooled investment options. You own units in the investment option. Income, expenses, tax, franking credits and capital gains or losses are incorporated into the value of those units.
A wrap platform operates differently. Investments are allocated to your individual account, supported by a cash account through which contributions, investment income, fees and tax adjustments are processed.
A pooled structure generally manages many things at fund or option level.
A wrap platform structure may allow more decisions to be managed at individual account level.
Tax Is Where the Structural Difference Becomes More Visible
In a traditional pooled structure, tax may generally be calculated across the fund or investment option. Income, deductions and capital gains form part of the overall tax position and are reflected through unit pricing.
In a wrap platform structure, income, gains, losses and deductible expenses may be attributed more directly to your own account, based on the investments you hold and the transactions that occur.
This does not mean a wrap platform will automatically produce a better tax result. It depends on the platform, the investments, your stage of life and your personal circumstances.
Retirement Is Where a Wrap Platform Starts to Show Its Practical Value
We’ve had conversations with clients who are only a few years from retirement. They might have never thought about where their first pension payment will come from. If all your money is invested in growth assets and markets fall sharply, you may not want to sell those assets simply because a pension payment is due. Some of the questions we consider and provide guidance on include:
- How much cash should be held?
- Where should pension payments come from?
- When and how should the portfolio be rebalanced?
- When should assets be sold?
- How do you avoid making rushed decisions during a market downturn?
Wrap platforms generally provide access to a broader range of investments. You gain the option to hold cash or defensive investments for shorter-term needs while other assets remain invested for longer-term goals.
Do you know what you own?
Once your super becomes one of your largest assets, it is reasonable to want a clearer picture of what you actually own. Unlisted property, infrastructure and private equity can all play a legitimate role in a diversified portfolio. They are also valued differently from shares or other securities that trade regularly on public markets.
With Super, it is important to consider questions like:
- How often are these assets valued?
- How quickly are valuations updated when markets change?
- How liquid are the assets if money needs to be withdrawn?
- How much of your portfolio sits in assets you cannot easily see?
With a wrap platform, you can generally see the individual investments held, their values and the transactions occurring within the account.
What About Fees?
Both wrap platforms and industry funds have fees and costs, but what you pay for and what you receive in return can differ. We would look at:
- The total expected cost in dollars.
- The investments you are actually likely to use.
- Whether administration fees are capped.
- Whether any family fee arrangements are available.
- The value of the tax, reporting and investment functionality you require.
Many investors assume wrap platforms are more expensive than industry funds. While industry funds often have lower headline fees, our experience is that once super balances exceed around $250,000, the cost difference can become much more comparable. Depending on how a portfolio is structured, access to wholesale investment options and platform fee discounts can sometimes result in a wrap platform being similarly priced, or even more cost effective, whilst also providing greater investment choice, transparency and flexibility.
We’ve had many conversations with clients who have accumulated substantial super balances but have never stopped to ask what they actually own, how tax is being managed, or where future pension payments will come from. Sometimes the answers reinforce their existing strategy. Sometimes they lead to a different conversation altogether. If you’d like to have a conversation about your super, understand what you’re invested in, or review whether your current structure remains appropriate, feel free to get in touch.
Authors
Financial Adviser,
CFP®, B.Fin(FP), SMSF Specialist Advisor®/ SSA®
Principal, Financial Adviser,
B.Com, Gdip(FP), M. AppFin, CFP ®
