Investor interest in and engagement with direct investing and SMSF approaches has been steadily gaining momentum over the last 10 years. Recently, these strategies have overtaken traditional investment avenues such as retail super fund vehicles.
The reasons for such a growth in interest in direct investment are many. They include greater control of investment decisions, greater levels of transparency and the ability to access and liquidate ASX equities with no fund lock-up barriers.
SMSF and direct investment also affords the investor with choice over more types of securities, while providing cost and tax efficiencies over other investment vehicles.
Investors and their advisers, however, need to be fully aware of some of the potential pitfalls before embarking on an SMSF or individual direct investment path. Here are five simple questions that every investor should ask:
- Suitability – do the trustees/members know what they are doing and are they meeting the fund’s sole purpose test?
- Portfolio diversification – does the portfolio have too few or too many securities?
- Turnover – liquidity can lead to high turnover.
- Fees – fees can start adding up if the portfolio is overly complex and/or turnover is high.
- Corporate actions – can the Trustees/Members deal with the various corporate actions (floats, share purchase plan, takeover, shareholder votes etc) that may come their way?
There is an emerging solution for those wishing to invest directly or take more direct control over their investment portfolios – that of ‘direct model portfolios’.
Direct model portfolios are professional portfolios that trustees/members replicate and which provide a ‘do it with me’ solution for direct investing.
The key benefits of direct model portfolios are the investor is supported by professional management via an expert portfolio manager, while allowing them to retain significant control of their portfolios.
Unlike other superannuation or investment vehicles, direct model portfolios allow all participants greater transparency for what is in the portfolio, greater ease of access and ability to implement and manage changes to their portfolios and yet still allow for the support of an investment professional who can provide research and corporate action advice.
Amanda Gillespie is the chief executive officer of Lonsec Fiscal Holdings.
