Podcasts
Gareth Lane
Ashwin Ramdas
Updated Dec 20, 2022
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Tim: Welcome back to SMSF Mate’s podcast. This is episode six. My name’s Tim. I’m here with Gareth and Ashwin.
Gareth: This is the Gareth voice reporting for duty.
Ashwin: I’m here to make sure Gareth doesn’t go off the cuff.
Gareth: I’d say stuff I’m not supposed to.
Tim: In this episode we’re going to talk about having an SMSF. I am looking for places to invest and place trades, execute trades, buy different assets and that sort of thing. I have shopped around. I’ve tried a few different options. I’m just here I guess to discuss the pros and cons of certain players and interested to hear your guys’ thoughts as well.
Gareth: Well I’ll happily tell you my personal story. I think when I kind of embarked on the journey of a self-managed super fund I sort of as most people kind of had a bank account. You do need a bank account for a self-managed super fund. You kind of have to start there. The default thing is to go to your standard bank and set up a cash account for a self-managed super fund. Of course as soon as you start that application I’m sure your bank will have a lovely little algorithm in the background that sends off a white flag to the self-managed super fund stock trading department and says hey, we’ve got a customer. Come sell me something. I’m sure everyone who’s got a normal bank with whoever it’s with there will be a default system that that bank uses to buy stocks and shares and whatever you want to call them. My particular bank seemed relatively reasonable. What I kind of didn’t like about it was they charged a relatively high amount per share transaction. It wasn’t volume limited.
Ashwin: Was it per share or it per trade?
Gareth: No, it was per trade. I wanted to buy very small parcels of trades and so in percentage terms if you wanted to buy $500 worth of shares the transaction cost was a couple of percent but then if you wanted to buy $50,000 worth of shares then the transaction costs were very low. That led me on a on a bit of a Google and went Googling all sorts of things about low cost per transaction. I stumbled on a broker where you can buy stocks and shares in your SMSF and any kind of financial products. They have a $500 minimum limit but they only charge per share. When you want to buy small parcels of shares the percentage is a couple of dollars rather than a fairly large percentage of that transaction. I think that was a really interesting thing that I learned.
Then the other thing I learned was that there are a whole heap of funds, managed funds, private funds that your general person would never have heard of. One of the founders of SMSF Mate has done a wonderful job of collating a lot of that information. If you go to our website smsfmate.com.au and click on the investment products, this isn’t a plug by any means.
Ashwin: Shameless plug.
Gareth: Shameless plug. There’s no fee for this service but it’s a wonderful collation of a whole heap. There’s a thousand, 1200 or so individual funds that you probably have never heard of and there’s all sorts of things on there that do good returns, bad return. There’s a million different ways of looking at it.
Ashwin: 1200 PDS there.
Gareth: Yes. Lots of reading but…
Ashwin: I think Gareth brought a good point. If you’re transacting on a low level which generally points that you’re doing a lot of trades if you’re buying $500,000 parcels. Those transaction fees…
Gareth: $500 parcels.
Ashwin: Those transaction fees are important because it’s going to eat into whatever profit you’re doing in your trading side of things. Now if you’re the sort of person buying a big chunk like a 50, 100 grand sort of chunks. Well then that low cost per transaction is probably going to work out maybe better than the per share return. You’ve got to make that decision and probably the flip side from an accounting point of view is how good is the data collection and reporting from that trading account because obviously more time it takes to get that information the more your accountant or provider for your financials is going to charge because it’s taking more time to collate the information. That’s also the other thing to run through. You might want to check with your providers that are doing your annual statements or your audit on what products they might recommend before just jumping on the low cost option.
Gareth: Because what I might save at the front end you might be getting slugged at the back end.
Ashwin: Accountants charged in the hundreds of hours so if you’re adding an extra 10, 15 hours then you might be eating away exactly what you just saved in your head.
Gareth: Transaction fees.
Ashwin: But maybe there is a way around it so those are the other things to look at because a lot of things do sync and talk to each other and those are things to talk about with your accountant and make sure that at least you’re being responsible you’re saving money that way.
Tim: There are a lot of options out there. I guess just in my experience I have used one of the, I guess one of the big four banks, their options which you mentioned Gareth. That is convenient because your money is within your kind of internet banking world. It’s easy to move funds around. It’s convenient. That convenience could come at a cost opposed to having to transfer a chunk of money to a specific broker account that takes time sometimes or at least it did before Osko and instant payment.
Gareth: It still takes a day or two normally though.
Tim: There’s that. You’ve got, I guess almost recently you’ve got all these fee-free type services which are out there. They don’t charge commission for trades. They seem to…
Gareth: How do they make their money then?
Tim: That’s a whole another…
Gareth: Whole other podcast.
Tim: I believe they make money on the deposits that they hold cumulatively. They might make a very small interest margin on that.
Ashwin: Your money might be on trust then effectively.
Tim: Yes and there’s potentially risk there. They also execute the trades as well. They may or may not be clipping the ticket on that.
Gareth: What do you mean by clipping the ticket?
Tim: They could be executing through like a dark pool for instance.
Gareth: I say I want to buy a share at ten dollars.
Tim: Yep or you might go to the market and say I want to buy a share at the market price. The market price could change suddenly as you execute your trade. Then the algorithm will buy that ten dollar share and then sell it to you for eleven and then they make the difference that’s one example.
Ashwin: I think it’s a valid point. You want to check if those shares are in trust. Given a super fund, it’s really important from an order’s point of view how those shares are being held as well in the account. My personal view is I like platforms where you’re owning them directly. There’s a bank account in the super fund’s name. You purchase the shares directly in that platform. That account is actually its own BSB account number in your own name. It’s not subject to…
Gareth: How do you go about finding out?
Ashwin: That’s a question to ask those platforms before you set up an account.
Gareth: What would you be looking for?
Ashwin: There’s a bank account generally. You’d have a bank account in your own name.
Tim: Who’s in custody of the asset?
Ashwin: Who is in custody of the asset? Those are the questions you ask. Most sites do disguise it. It’s just where it is on their site.
Gareth: The important thing if you transfer funds to a broker it may not actually be the account isn’t in your name.
Ashwin: Yes and from an auditor’s point of view that’s really important for them to know. It’s generally sometimes maybe an issue there and an order to might charge more to respectively checking that sort of stuff for you.
Tim: I guess further to that I mean I’ve also had experience with full service stock brokers. They are certainly a dying breed in this…
Ashwin: Low cost option.
Tim: In this race to the bottom with fees and so on but the full service broker in my experience you spoke about high commissions before Gareth. These commissions were sort of eye-watering. Sort of like $120, $150 dollars a trade but the benefit is you are getting some level of advice. You’re also getting some pretty good deal flow and things that which come across the broker’s desk. You’re getting access to potentially alpha ideas that they have or capital raisings they’re doing which may not be well, they’re not available to…
Gareth: Because not everything goes on the ASX.
Tim: That’s right. I guess there’s a cost there.
Ashwin: It’s their way of, it is their way of paying for that opportunity.
Tim: That’s right.
Ashwin: If you don’t want to be part of an opportunity fund you could try your broker but again you’ve got to do a bit more due diligence obviously on the broker’s side of anything that they’re providing to you as an opportunity. That could be conflicted remuneration and other things in there but worthwhile.
Gareth: There’s a lot more options than going to your standard bank account.
Tim: I guess further to that more comprehensive broker that you had experienced with Gareth. I imagine you would have access to international markets there.
Gareth: Absolutely. That was one of the big attractions is that you don’t need multiple accounts with multiple different brokers and exchange rates. You can buy ETFs. You can buy funds. You can buy Aussie dollars. You can buy US dollars.
Ashwin: All makes sense.
Gareth: That was the interest for me but not necessarily for everybody. Some platforms are far more complicated than others to set up.
Ashwin: Some have got some good reporting tools. Some have got their own research built into them. It ultimately comes back to what are you trying to achieve and then finding the right platform I think that suits what you’re after I think.
Gareth: You can have multiple. You don’t have to have one.
Ashwin: You definitely can have multiple. Just remember all your logins.
Gareth: Yes. Passwords.
Ashwin: Password protect.
Thank you for joining us once again. If you’re interested in our waffle about self-managed super funds feel free to join us on smsfmate.com.au or search SMSF Mate in Spotify.
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