1. Bearing in mind that there are client looking up to me for a piece of advice on their self-managed super fund organization, I would ensure that I cover the following areas during our interview:
Governing rules, trustee must follow the rules and guidelines put in place to ensure smooth operation of the fund and its members.
I would also emphasize more on the fund trust deed as it is the document that determines how the fund is to be governed.
Strategic plan is also another hot topic that can never be left out when addressing issuescommandingself-managed super fund as it is the item that explains what the fund aims to achieve (Henderson, 2012).
Also most of our hard earned income gets lost during taxation, therefore I cannot fail to touch on this subject matter and highlight on how having a self-managed super fund will go a long way in reducing this tax.
Finally succession planning will also be included in my bucket since it is at this stage where most self-managed super funds end up collapsing due to poor succession. After all why run a prosperousself-managed super fund only to drop it at the end (Phillips, 2011).
As I prepare my clients to attend the interview, I will request them to ensure that they involve all their trustees and if possible ensure they all attend. Also along with them they should carry their self-managed super fund legal documents, financial statements, list of member’s financial plans, and registration documents. The above mentioned documents will be very handy as Iassess their self-managed super fund structure, so as toadvise them accordingly on the way forward and how they will be able to avoid future costs implications.
In a bid to build a close and harmonious relationship with my clients I would employ the following strategies,
This entails being a good listener and ensuring that you are on the Clients’ side story so that you manage to understand the underlying points while presenting. It is showing empathy.
Posture mirroring involves reading the client’s body language and imitating it in a way that you give feedback rather than mockery during interview conversations.
Tone and tempo mirroring
This is matching the tone and tempo of the client while you engage in a conversation.
Reciprocity is the act of giving gifts to clients without asking for something in return in order to trigger the feeling of obligation to the client.
The points to be regard during afinancial service guide presentation are as follows;
How to deal with a complaint if a client is unhappy
How the financial advisors are paid
The advice and service rendered by the advisors
Insurance policies and referrals
As an advisor the kind of compensation I would expect to receive would include
Fees only in this kind ofcompensationI the advisor will be compensated by fees paid by the client, this may take a percentage a flat retainer fee or an hourly fee or flat rate onetime project fee. This kind of remuneration will ensure that the client will not be engaged in future obligations of advisory fee pertaining the same matter under advisory (Phillips, 2011).
Commission-based compensationcommission are to be paid as a percentage of the value of the investment under advisory, this form of compensation might go on for a continued period of time as it is payed once income is realized. E.g. the sale of an insurance policy that I had advised on. The compensation method is very flexible to the client as both the advisor and client will realize revenue at the same time moreover the client is bearing a lighter baggage as commissions are negotiable.
Fee and commission based compensation
Such arrangement of compensation may be arranged where I will be advising on a financial plan and latter seeing it through its implementation and realization. This ensures that I provide continuous advisory throughout the investment period.
(f) The range of products that I will be providing advice on will include;
Investment portfolio-investment should be divers in order to spread the risk and avoid major losses.
Tax position the client should know the various ways he can minimize his tax burden or avoid it totally
Social security investment. Pros and cons of such a fund should be made aware to the customer in relation to retirement.
Existing debt the client should be guided on how to recover or clear his debt at all cost.
Need for capital growth. After investment it is wise to ensure that the portfolio is always increasing in value due to the devaluation of currency.
(g) In case a client is having a dispute, he should follow the following steps to resolve it.
The client should identify a reputable ombudsman organization and register his complain
The organization will collect information from the client and self-managed super fund organization or any other financial organization that the client is enjoying their services, regarding the complaint. During this period the client will give room for the information to be collected. After this the organization will make a decision regarding the complaint.
If the client will still not be satisfied by the decision arrived at by the ombudsman, the ombudsman will provide him with a written assessment on how they think the dispute should be resolved and take it to ASCIS.
2. For a client to need the services of SMFS he or she should be having the following features.
He/she should be longing for a means to protect small business or assets.
The client should be an individual who is looking for a means in which he/she can quickly buy and exchange assets with minimal tax implications.
Cutting cost is another aspect that the client would be focusing on in order to join anself-managed super fund
The client would also like to avoid tax, by joining self-managed super fundhe will achieve this since once self-managed super fundstart paying pensions they are not taxed on capital gains due to a sale of asset.
Finally the client would be aiming to acquire assets that are so expensive that he can’t afford them on his own but by joining forces he is able to own part of the property
The reason as to why we as financial planners may require to utilize self-managed super fund will include;
Self-managed super fundstructures are effective and avoid administrative weaknesses since I and the other members are much in control of our investments decisions therefore the time lag experienced in large funds organization when a request is lodged, will not be the same in our fund.
Due to the uncertainty of the future, self-managed super fund is very flexible such that when one reaches 60 years and above he will be able to withdraw benefits tax free before death to avoid potential death benefits tax payable by beneficiary’s e.g. my adult children.
With a large self-managed super fundI will be able to cut cost since once it accumulates large balances above $200,000 and above administrative cost will not be felt that much is it is in small funds, since administrative funds are fixed regardless of fund balances
Once the self-managed super fundstarts paying pension I will be able to enjoy the advantage of not paying tax on capital gains once we sell an asset.
(c) The benefits of self-managed super fundwith regard to the following headings will include
in a self-managed super fundone is able to cut cost, buy and sell assets quickly, protect assets and also withdraw tax-free benefits in future. At the same time each trustee has control on the investment decisions to be made.
Cost control- self-managed super funds have a potential of cutting cost on administration once they accumulate balances more than$200,000 since the administrative cost is uniform regardless of the balance deposits.
Investment flexibility: a member of self-managed super fund has the ability to change their investments and asset allocation of their portfolios quickly and at ease. If I was a large fund for instance, an investment company there would be a delay between when the investment changes are requested and when they are affected.
Retirement Income Streams- as an investment vehicle self-managed super fundare convenient since they provide good returns that do not attract capital gains tax once they dispose an asset so long as it is paying pension. Moreover the fund can be inherited by the kids once they come of legal age.
Protection from Creditors- self-managed super fundsare a good means of protecting assets as well as business. This prevents the creditors from accessing your personal property, since it offers asset protection succession planning and security of tenancy.
Life Insurance-once one joins a self-managed super fundhis life insurance is declared null and void, however the trustees have an option of purchasing a life insurance that covers all the trustees
Estate Planning- most of the times individual finance might be limited when one is to acquire expensive assets with low savings. Members of self-managed super fundhave an advantage of combining their funds and acquiring assets that are deemed expensive and own a portion of it.
Taxation Planning- if you are a person who would like to avoid tax or even pay zero tax then self-managed super fund is the way to go since it offers an option of tax-free benefit withdrawal once you are aged above 60 years or evenavoid capital gains tax when selling an asset so long as pension I being paid by Self-Managed Super Fund.
(D) The following disadvantages are associated with Self-Managed Super Fund.
Self-Managed Super Funds are time consuming since it requires one to be fully and actively involved in the management of the entity and also all the administrative and day to day investment duties depend on the trustees(Phillips, 2009)..
Lack of investment knowledge may pose as a challenge since all the investment decisions depend on the trustees despite having a financial advisor, the penalties will be imposed on the trustees incase the funds fail to remit returns on time.
Non-compliance penalties are also a disadvantage as the tax office that regulates self-managed super funds has the power to freeze the funds due to non-compliance status. Causing a tax shocker.
Administrative cost are all uniform regardless the self-managed super fundhas huge or small balances, this is a disadvantage to self-managed super funds with small balances as it eats up the funds and make it costly to run the investments operations.
3. The clients will not meet their requirements without my advice since it is their first time to be involved in aSelf-Managed Super Fund.
The assumptions that I made in relation to my decision is that While Frank has run a successful business for many years, he has only limited investment experience and Frank and Heather describe themselves as growth motivated investors. This puts them at a very big risk of losing their funds in the trustees either due to non-compliance or poor investment choice.
The information source that have used to arrive at my conclusion is the case study above where it states that “While Frank has run a successful business for many years, he has only limited investment experience and Frank and Heather describe themselves as growth motivated investors.”
Investment restrictions that are put in place by government for Self-Managed Super Funds are:
You cannot buy or sell assets from members
You cannot lend money to members or any other related parties.
Assets bought for commercial basis cannot be sold below the market value
Borrowing money from your self-managed super fund is restricted unless under certain conditions.
4. TheEdithvale Retirement Fund managed to raise enough fund of $625,000 above threshold,also the fund was timely since in two years’ time Edithvale Retirement Fund will not be subject to capital gains tax or income tax as frank retires. However at the moment all the three members of the fund are fully committed and no one is free to run the operations of the self-managed super fund (Phillips, 2011). Also the fund has a member who is currently remitting funds but has no legal recognition of belonging to Edithvale Retirement Fund this might pose achallenge to this member regarding his finance in the fund and therefore the trustees should ensure that legal documentation is availed for the member to be recognized (Murden, (2014).
(b) Considering that frank wants to transfer his business toEdithvale Retirement Fund, with least cost possible incurred, he should do the following;
Value the business and estimate its current market price and then spread the price in specie over the years. Since he is aged 61 he can treat the business as a contribution to the fund where he will be contributing $100,000 yearly and once he is 65 years old he can be contributing $450,000 a year till the fund fully owns the business., this will ensure that he avoids the concessional contribution tax which is 46.5% per year on excess contribution. In addition it will ensure the income tax from business will be tax free once self-managed super fund hits the pension phase (Phillips, 2009)..
Strategic Planning -since already frank and his already own a house it will be much protected while under the fund and also it will help in acquiring more assets through external debt since the fund will have more leverage
Tax planning and structuring the-three members soul ensure that they do not dispose any kind of asset belonging to the fund until it starts to pay pensions in order to enjoy capital gains tax free in future while it pays pension
Superannuation and retirement -contributions being made to the fund should be more than enough to generate enough income such that after retirement frank and his wife wont realize any reduction on their annual income in fact it will more than what they used to live on (Phillips, 2009).
Estate and succession planning-while the advisor in most times focuses on how to invest, at this stage he is very crucial together with the legal officer as they are supposed to be present during the succession of the self-managed super fund as for frank the next trustee in linewill be his son and his wife as the other trustee (Henderson, 2012).
Risk management -
in order to manage or minimize risk on investment, the trustees of the fund, that is frank and his wife should diverse their portfolio so as to make sure even if one investment fails to remit returns on time the rest will still be in good shape.
Asset protection once-frank has managed to transfer the business to the self-managed super fund he will enjoy asset protection from creditors and also payless tax on running the business.
Investment advice the-newly formed self-managed super fund is doing fine though it would be wise to exploit other investment vehicles such as shares and government bonds in order to increase the returns.
Cash flow management-every member of the fund should ensure that he or she has kept track of expenditure especially ben who is looking forward to start a family, it will also help him to realize his ability and power to save
Personal budgeting-this ensures that the expenditure made is in line with the goals intended and thus avoid wastage of money on unnecessary goods
5. Preparations I will undertake before presenting my strategies are as follows
1 Ensure the content I am about to deliver is in line with what the client is looking for to avoid deviation on the topic.
2 Internalize the strategy such that I understand it well enough to connect it with the client’s financial situation in order to yield solutions.
3 Have charts around in case I need to explain a concept using diagrams.
Steps on how to transferreal-estate property to self-managed super fund.
Theclient should first seek financial advice concerning the valuation of the property in order to ascertain the current market price of the asset, and then spread the amount throughout the following years (Murden, 2014).
From there, he should seek legal advice on various means he can use to transfer the property to the self-managed super fund. The advice may include transferee by contribution where the client takes thevalue of the asset as a contribution to the self-managed super fund, where by the spread amount will be contributed after every year. The tax implication that will be involved with this option is only the concessional contribution tax which 46.5% that will take effect once the amount exceeds the stipulated contribution per year. Another way is to acquire the asset by simply purchasing it, though this will attract the (CGT) capital gains tax during transfer finally the individual may result to selling of the business shares to the self-managed super fund although the method has a lot paperwork and high cost implications.
After the above advice the client settles on one option of transfer,
Objections that might be raised by clients during presentation might include.
How will I be able to manage aself-managed super fund yet I know nothing about financial investment? Response; that is the reason I am here to help you and walk you through the financial investment through self-managed super fund as a partner and ensure you get the maximum benefits possible.
How am I sure that my investment is secure in case ofsudden death since once I join self-managed super fundmy insurance is void? Response; your insurance will be void definitely but the good news is that self-managed super fundcan take out insurance that ensures all trustees are covered,
6. The following steps are to be taken before self-managed super fundis in operation
1 draw up a trust deed
2 nominate trustees
3 clear the tax issues
4 Obtain atax fie number
5 create an investment strategy
6 open a bank account
7 Put money into the account
8 start buying assets
Sign Authority to Proceed
Draw a trustee deed
After step 1
After step 2
clear the tax issues
In due time
obtain atax file number
create an investment strategy
Once step 3 is complete
open a bank account
After step 6
Put money into the fund
After step 7
Start buying property
Once the account reflects the deposit
7. The various changes that might provoke a review of my self-managed super fundstructure would be
In case one of the members has reached the age of 65 years and wants to withdraw in order to enjoy the tax free benefit withdrawal, thus there will be a reduction in funds and hence a financial review will be necessary (Henderson, 2012).
A review might also be considered in cases where the funds have out grown the present strategy and requires to shift focus on to larger investments, this also will demand a financial review.
Tax office in charge of governingself-managed super funds may pass policies may trigger a review in case the current strategy is not in line with the newly formed policy.
Competition from other self-managed super funds in the industry which are mushrooming everywhere nowadayswill bring a need to review my strategy in order to keep abreast with the market trends and also be in apposition to exploit more investment opportunities (Phillips, 2009).
Inflation rates due to devaluation of currencies will influence a review and may be focus on assets that are less affected by inflation.
As an advisor it is in order to ensure that you keep abreast with the current changes in policies regarding self-managed super funds in order to give my customers the best, to achieve this I will ensure that I occasionally visit the tax office website as well as the self-managed super fund governing body’s website in addition to reading journals and books that pertain investment. Also I will utilize the social media to my level best as it delivers a lot of information in almost real time basis.
The level on going service that I would be offering would be
Financial plan review
Others e.g. strategy review
Portfolio valuation will help in ensuring that the client has achieved his targeted investment or is on his way there and the targeted income per year is achieved within the stipulated period.
Portfolio review will be beneficial in cases where there is a change in policies pertaining particular assets so as to ensure the self-managed super fund complies. Also such a review might be conducted in order to identify the assets that are performing and those that are not.
Financial plan review is to be conducted in case the unexpected economic changes have delayed the income expected and hence it requires that the plan to change in order to meet the new trend
Strategy review is conducted to ensure that incase a particular industry e.g. real-estate, has an overwhelming competition that is affecting the outcome of my clients inself-managed super fund, we will be able to sit down and come up with a new strategy.
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Carney, T. & Sceats, S. (2009). Retirement Security in Australia. SSRN Electronic Journal.
Henderson, S. (2012). SMSF DIY guide. Richmond, Vic.: John Wiley & Sons, Australia.
Murden, M. (2014). How to invest in property through your self managed super fund. Heghett, Vic.: Major Street Publishing.
Phillips, P. (2011). Will Self-Managed Superannuation Fund Investors Survive?. Australian Economic Review, 44(1), 51-63.
Phillips, P., Baczynski, M., & Teale, J. (2009). Can self?€ђmanaged superannuation fund trustees earn the equity risk premium?. Accounting Research Journal, 22(1), 27-45.
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