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Posted: 2 years ago by Pam Walkley
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SMSFs are set to take centre stage in 2011, with a raft of new products

With the number of people setting up self-managed super funds continuing to grow at a fast rate, new products aimed at SMSFs are expected to be a feature in 2011.

One launched last September, UBank’s USaver SMSF account, continues to lead the field in the array of “cash” solutions for super funds, winning the DIY super savings account category in Money’s 2010 Best of the Best awards.

A big attraction of this account is its high interest rate of 6.41%, which includes a 1.4% bonus rate in months when you do not make withdrawals. It’s also easy to open and easy to get access to your cash when you need to. And it has no monthly fees and customers have access to 24-hour phone support.

There is an SMSF-specific online application which links through to the ATO and ASIC resources to assist capture of correct data upfront and save customers time.

One drawback is you can only open this account if it can be operated independently by either party opening it, meaning it is only open to SMSFs with two members or less.

Another problem is with many retirees using the cash component of their super to provide a regular income, regular withdrawals would be common, meaning the bonus income would not be earned. One way around this would be to open two accounts, depositing a smaller amount in the one from which withdrawals are made, and the bulk in the other.

MONEY VERDICT

This is a great account for most SMSFs. It is flexible, easy to open, fee-free and pays a great rate of interest, especially if your fund can take advantage of the bonus rate. But because it can only be used by funds with a maximum of two members it will not suit all. Shop around, as there is a growing number of these accounts, including ING Direct’s Business Optimiser account which can be used by funds with up to four members (the maximum for an SMSF). It is also flexible and fee free. It pays a current rate of interest of 5% but has a welcome rate of 6.25% for six months on balances up to $1 million.

User comments
This cash management account is exactly the sort of investment that mum and dad self-managed super funds should consider. Mum and dad funds are really spoilt for choice with such a large range of excellent investment products on offer (managed investment funds, property unit trusts, etc) and even good buying opportunities in blue chip shares on the stockmarket. So why do some self-managed super funds lend money to their tax agent, auditor or financial advisor to invest in struggling small businesses or heavily geared property developments. Because they have not been fully informed of the risks involved, such as the business or company becoming insolvent. So, before lending your retirement savings to your tax agent, get independent financial advice and ask to see the financial statements for the business or investment. Is it making a profit high enough to cover its debt repayments? If it looks too good to be true, it probably is too risky.
This is an excellent investment product for SMSFs. DIY funds are really spoilt for choice with a wide range of available cash management accounts, managed investment funds, property unit trusts and even good buying opportunities in blue chip shares on the stockmarket. So why do some mum and dad DIY funds lend money to their tax agent, accountant or financial advisor to invest in high-risk, struggling small businesses or get-rich-quick property developments with high debt. Because they have not received good financial advice about the risks involved in their investment. Because they have been told that the small business investment or property development will yield higher returns than a mainstream investment such as shares or a cash management account. This is how SMSF members can suddenly lose their retirement savings. So, before you lend money to your tax agent, do some research into your investment. Ask to see the latest financial statements and seek independent financial advice.
Thank you for your insightful article on high interest cash management products for SMSFs. I am a financial advisor, specialising in assisting SMSFs. Unfortunately, some of my clients (who wish to remain anonymous) have been previously burnt by receiving poor financial advice from their tax agent, fund auditor or even a financial advisor. For example, one tax agent encouraged the trustees of the SMSF to lend him money from their retirement savings, to invest in the tax agent's own business, which subsequently became insolvent. The fund members lost their retirement savings. Another tax agent persuaded the trustees of a SMSF to invest in the struggling business venture of another client. Once again, the business became insolvent and the members lost their superannuation savings. Please encourage your readers and viewers to seek INDEPENDENT financial advice on how they invest their super. SMSFs should have an investment strategy based on a careful analysis of the risks involved.
Here is something for SMSFs to look out for. Many professional advisors (tax agents, accountancy firms, financial advisors, SMSF auditors, etc) are encouraging their SMSF clients to lend money from the SMSF to other clients or the professional's own company or trust. The loans are being sold to the SMSFs as good investments, promising higher returns but in many cases, the companies or trusts borrowing the money are heavily in debt or unprofitable. The end result is that the investment becomes insolvent and the members of the SMSF lose their retirement savings. SMSFs can avoid being fleeced by seeking independent advice from a financial advisor or solicitor who is not working hand-in-hand with their tax agent or auditor. SMSFs should be careful to obtain more information about the companies or trusts they are investing in. For example, they should insist on seeing financial statements (profit and loss, balance sheet, cash flow) before investing members' retirement savings in a loan.

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