Seeking financial advice

When it comes to your financial future and your superannuation, the advice of a good financial planner should not be underestimated.

Financial planners can help you make the most of your current financial situation, provide financial advice on tax issues related to your investments, and help you lay the foundation for your retirement. However, after the failure of Storm Financial and Opes Prime, the spotlight has been placed on the shortcomings of the financial planning industry and you may be wondering how best to evaluate the financial advice you receive.

When you seek financial advice, it is important to know that your financial advisor has the appropriate skills and experience and that the dealer group he or she is associated with has the ability to deliver the ongoing services you require.

The following questions may be useful in helping you to assess the merits of a financial planner:

1.    Do they have a Financial Services Guide?
All financial planners are legally required to produce a Financial Services Guide (FSG), which gives you an easy to understand explanation of their fee structure and the services they offer. The FSG should enable you to make an informed decision about whether you want to use their services.

2.    Are they, or their company, licensed by the Australian Securities and Investments Commission (ASIC)?
An authorised financial planner must meet the knowledge, skills and integrity standards required by ASIC.

3.    What are their qualifications and experience?
Check that the financial advisor has appropriate qualifications, preferably at least a Diploma of Financial Planning. Ask how long they have been a financial planner and the types of clients they typically work with.

4.    Are they a member of a professional association?
We strongly advise that any financial planner you use is a member of the Australian Financial Planning Association (FPA), the Institute of Chartered Accountants in Australia (ICAA) or the Certified Practising Accountant (CPA). The FPA is the professional body for financial advisers in Australia, while ICAA and CPA are the professional bodies for Accountants in Australia. Members are bound to adhere to Codes of Ethics and strict operating guidelines to protect clients’ rights.

5.    What services do they offer?
Does the adviser only offer investment advice, or do they offer total financial solutions, including insurance, tax, estate planning and so on. Do they have formal ongoing review services? Do they offer investment administration services?

6.    How are they paid for their services?
Find out if they operate on a flat fee, brokerage or commission basis. Ask them to explain all upfront, ongoing and exit fees which might be payable by you (directly or indirectly).

When seeking financial advice, always remember it's your money you are investing. Take the time to evaluate your financial planner's advice and don't be afraid to ask questions. To find out more about the services that a financial planner can offer and how they can help you build wealth, call 1300 55 10 45 or visit www.intellichoicefp.com.au

Intellichoice financial planning - new design

We have just revamped the Intellichoice financial planning website. Please visit our new website to view our various financial services and products on offer. We aim to provide our users with educational and useful information on financial planning, debt management, superannuation, retirement planning and more.

SMSF’s turn to term deposits

Many investors with self managed super funds (SMSF) are choosing to put all their funds into one asset class – most often this is cash.

As investors get older, they are more concerned with capital protection and move away from balanced portfolios with about 70% of assets in growth investments (for example property or shares) and 30% in defensive investments (for example, cash). About 20% of SMSF’s had all their funds in one asset class, most often thisis cash assets such as bank deposits and term deposits.

Understanding your role and responsibilities with a self managed super fund: Part 4

Complying with the super and tax laws is your responsibility, even if you use a super or tax professional, or a financial planner. So it’s important you understand what you need to do.

As a trustee for a self managed super fund, your duties and responsibilities include:

• making sure the fund’s sole purpose is to pay retirement benefits to members
• accepting contributions and paying benefits (pension and lump sum) according to the super and tax laws
• making investment decisions and complying with any restrictions
• ensuring an approved auditor is appointed for each income year
• completing administrative tasks, such as lodging annual returns and record-keeping
• reviewing and updating the super fund’s trust deed and investment strategy

If there are any changes to your SMSF, you will need to inform the ATO within 28 days. These changes may
include any of the following:

• trustees
• directors of the corporate trustees
• members
• contact details (contact person, phone and fax numbers)
• address (postal, registered or address for service of super fund notices)

To avoid penalties, make sure you understand and comply with your duties and responsibilities under the super and tax laws. If you don’t comply,  the ATO can:

• impose administrative penalties
• make an agreement with you to rectify the problem
• make your super fund non complying (which means your super fund loses its tax concessions)
• disqualify you as a trustee
• prosecute in the most serious of cases.

Investing your fund’s money
Being a trustee of an SMSF gives you more flexibility when it comes to investing your super fund’s money. Unlike some other super funds, you can choose the investments for your fund, so long as you invest according to the following:

• the super fund’s trust deed
• the investment strategy
• the super laws

While the super laws don’t tell you what you can and can’t invest in, they do set out certain investment restrictions you need to comply with.

For example, unless an exception applies, trustees generally can’t:

• lend the fund’s money or provide financial assistance to members and their relatives
• acquire assets from related parties of the fund including – fund members and their associates – all the fund’s standard employer-sponsors and their associates
• borrow money on the super fund’s behalf (certain instalment warrant arrangements are allowed) lend to, invest in or lease to a related party of the fund (including related trusts), more than 5% of the fund’s total assets
• enter into investments on the fund’s behalf that are not made or maintained on an arm’s length (commercial) basis

Appointing an approved auditor
You need to appoint an approved auditor to audit the super fund each year. An approved auditor will:

• examine your fund’s financial statements
• assess your overall compliance with the super laws.

An approved auditor needs to be a registered company auditor or a member of certain professional organisations. They need to follow professional auditing standards that require the audit to be conducted independently. An SMSF professional may help you fi nd an approved auditor. Before the annual audit, you or your SMSF professional needs to prepare information about your accounts and transactions for the previous income year. This information is then sent to the approved auditor. The auditor will provide you with a letter of engagement confi rming they accept the appointment and the scope of the audit. You need to give the auditor any further documentation they request so they can audit your fund.

Once the approved auditor has completed your super fund’s audit, they will provide you with the following:

• an audit report
• a management letter, which summarises the findings of the audit and any action taken or proposed by the trustees

You need to have an auditor’s report before you lodge your fund’s SMSF annual return. The law requires that you appoint your auditor at least 30 days before the annual return is due to be lodged. To ensure you lodge on time, you need to allow enough time for your auditor to conduct the audit.

The auditor will also notify the ATO if one of the following occurs:

• find you’ve breached certain super laws
• have concerns about your fund’s financial position.

Your annual responsibilities
As a trustee there are some things you need to do each year under the super and tax laws. There are also some things you need to do to make sure your super fund complies with the law and it operates effectively.
Use the following checklist each year to make sure you meet your annual responsibilities.

Aussies paying off the credit cards

Australian credit card holders are paying off their card debts faster than ever before.

According to new figures released on last Friday by Mastercard, approximately 70.8% of card debt is currently accruing interest, the lowest level in more than one year. Consumers are also more reluctant to make cash advances on their cards, wth cash advances falling 13% compared to one year ago. The growth in credit card limits has also slowed to just 3.5% in 2009 - down from 12% the year before.

Women get left with the debts

Women are most often the victims of relationship debt, or sexually transmitted debt, which are the names given to debts that are left over after a relationship breaks down.

Most partnership debt is initially racked up by the man in a relationship according to a new study by credit reference service Veda Advantage.

Relationship debt is also a problem in families and between friends. The consumer law action centre recommends getting independent advice before committing to a joint loan or providing security for someone else’s loan.

Managing your self managed super fund's investments: Part 3

One of your key areas of responsibility is to manage your super fund's investments. You have certain duties and responsibilities when making investment decisions. They are designed to protect and increase your member's benefits for retirement.

Your investment strategy

You need to prepare and implement an investment strategy for your self managed super fund (SMSF) and review it regularly. The investment strategy needs to reflect the purpose and circumstances of your super fund. You will also need to take the following into consideration:

• investing in a way to maximise member returns taking into account the risk associated with the investment
• diversification and the benefits of investing across a number of asset classes (for example, shares, property and fixed deposit) in a long-term investment strategy
• the ability of your super fund to pay benefits as members retire and pay other costs incurred by your super fund 
• the needs of members (for example, age, income level, employment pattern and retirement needs).

The investment strategy should set out your investment objectives and detail the investment methods you will adopt to achieve these objectives. You will need to make sure all investment decisions are made according to the investment strategy of your super fund. If in doubt, we recommend that you seek investment advice from a professional financial planner.

SMSF restrictions

Super laws place restrictions on the types of entities your super fund can invest in or with, and the entities that your fund can acquire assets from. Investment restrictions exist because they protect fund members by making sure fund assets are not exposed to undue risks, for example a business failing.

Loans or financial help to members or a member’s relative

You can’t lend money or provide direct or indirect financial help (including the provision of credit) from your super fund to a member, or a member’s relative. For example, using super fund assets to guarantee a personal loan would contravene this investment restriction.

A member or a member’s relative means any of the following:

• a parent, grandparent, brother, sister, uncle, aunt, nephew, niece, lineal descendant or adopted child of that individual or of his or her spouse
• a spouse of that individual or of any individual specified above

Borrowings

You can only borrow money in very limited circumstances. The circumstances include:

• borrowing money for a maximum of 90 days to meet benefit payments due to members or to meet an outstanding surcharge liability. The borrowings can’t exceed 10% of your fund’s total assets
• borrowing money for a maximum of seven days to cover the settlement of security transactions if the borrowing does not exceed 10% of your super fund’s total assets. You can only borrow to settle security transactions if at the time the transaction was entered into it was likely that the borrowing would not be needed 
• borrowing, using instalment warrants or instalment warrant like arrangements that meet certain conditions.

Acquisition of assets from a related party

You can’t acquire assets for your SMSF from a related party of your fund. However, there are limited exceptions to this rule where:

• the asset is a listed security (for example, shares, units or bonds listed on an approved stock exchange) and the asset is acquired at market value 
• the asset is business real property and acquired at market value
• the asset is an in-house asset, but the level of your super fund’s in-house assets does not exceed the threshold for SMSFs of a maximum 5% of total fund assets, or is an asset specifically excluded from being an in-house asset.

A related party of a fund covers all members of your fund and associates, and all standard employer-sponsors of your super fund and their associates.

In-house assets

An in-house asset is a loan to, or an investment in a related party of your fund, or an investment in a related trust of your fund. An asset of your fund that is leased to a related party is also an in-house asset. In general, as a trustee you are restricted from lending to, investing in or leasing to a related party of your fund more than 5% of your fund’s total assets.

There are some exceptions, including for business real property that is subject to a lease between your super fund and a related party of your fund. There is a limited exemption for certain investments in related non-geared trusts or companies.

Investments need to be made and maintained at arm’s-length

Any time your SMSF makes an investment, it needs to be made and maintained on a strict commercial basis. This is referred to as an investment at arm’s-length. The purchase and sale price of fund assets should always refl ect a true market value for the asset. Income from assets held by your fund should always refl ect a true market rate of return.

Investing in business real property

You need to ensure the level of investment in business real property still meets the investment strategy of your
fund, including diversifi cation of assets, liquidity and maximisation of member returns in your fund. A fund with 100% investment of assets in business real property could have some problems meeting these requirements. As with other super fund investments there can’t be a charge over an asset (that is a loan or covenant).

For more information about self managed super funds and whether this is the best option for you, speak to a financial planner at Intellichoice on 1300 55 10 45. We can also assist with a SMSF loan to buy property through your super fund.

Investors confidence surges in 2009

Investors are not deterred by the current rising interest rate environment. According to ING Investment Management’s quarterly Investor Dashboard Sentiment Index, Australian investor sentiment is up 124% in the last 12 months, highlighting the rapid improvement in economic and financial conditions.

More than 80% of Australians surveyed believe their economic situation has improved, and the early prognosis for 2010 looks rosy, with more than 70% of Australians expecting the economy to improve over the next three months.

Similarly, 67% of Australian investors expect an increase in property prices - a 6% jump on last quarter’s results. The survey records the opinions of more than 3,500 mass affluent investors from 12 countries across the Asia Pacific Region.

Aussies plan to boost savings this year

More than three quarters of Australians who participated in an online poll by News Ltd newspapers plan to increase their savings in 2010. Approximately 76% of respondents said they would build their savings this year, while 35% said they would not be adding to their savings in 2010.

If you are planning on adding to your savings in 2010, speak to one of the financial planners at Intellichoice on 1300 55 10 45 for tips and strategies.