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Self Managed Super Fund (SMSF) Article
Self Managed Super Fund People in Profile - Dixon Advisory
By Tony Negline.
This article may be out of date.
28th October 2009
There are many diverse organisations that provide services to the Self Managed Super Fund sector. Many of the people who run these organisations have been working with SMSFs for many years and their insights are invaluable. This week DIY Super begins an occasional series of articles about some of these people and their businesses.
Dixon Advisory became involved in Self Managed Super Funds in 1986 when its Canberra based founder Daryl Dixon left the Commonwealth public service with a wealth of knowledge about superannuation.
His model involved charging relatively modest fees for advice and always refunding any commission earned from client product placements.
Over the years Daryl has been a constant thorn in the side of many life insurance companies, fund managers and financial planners because of his view that these organizations often acted in their best interests and not their clients. He has always been kept busy fixing the mistakes of other advisers.
DIY Super spoke to Daryl's son Alan who joined Daryl in 2001. They have worked together with Daryl as Chairman and Alan as MD ever since.
The firm got into Self Managed Super Fund administration in 2001 and now administers over 3,200 small super funds. It employs 235 people in a diverse business covering most professional services that a Self Managed Super Fund would need including investment management, financial advise and basic small super fund administration. "We now have offices in Canberra, Sydney and Melbourne," said Dixon.
Alan Dixon says that the firm is not against commissions on financial products. "The never-ending arguments about financial adviser commissions versus fee for service are misplaced. The debate should be about better disclosure and demonstrable service," he said.
In many cases commissions, and financial product fees in general, are expressed as percentages but very few people understand what these really mean. For example someone with $2m to invest might have a choice of a 0.8% commission or a $10,000 fee.
Dixon thinks many investors would think the 0.8% commission is lower and therefore opt for it. The 0.8% fee is actually equivalent to $16,000 in costs.
In relation to fees Dixon Advisory charges a minimum of $1,000 per annum (inc GST) and a maximum of $4,990 (inc GST) to administer a Self Managed Super Fund. The minimum fee is charged for funds with less than $100,000. The maximum fee is charged for funds with more than $500,000. Between $100,000 and $500,000 a fee of 1% of fund assets is charged. A discount on these fees is available for clients who also purchase Dixon's annual fee financial advice services.
"To date about one third of our SMSF administration clients have taken up this offer," he said.
Alan Dixon says that the average profile of the Self Managed Super Funds his firm administers largely reflects the profile of all small super funds. That is, Dixon Advisory's clients are predominantly over 50 and the average SMSF asset account balance is about $800,000. "Many of our clients are highly educated professionals," said Dixon.
In his experience most SMSF trustees approach their role with as much thought, knowledge and skill as they possibly can. He believes many of them try to invest like a professional fund manager which can sometimes cause problems because they don't necessarily have the skills to identify underlying weaknesses and costs in some products. (Recent experience might also suggest that many professionals suffer from the same disability.)
"Investors are attracted to Self Managed Super Funds because the investor's money is in their name and this control is important. Some investors are suspicious of all large organisations and the recent financial troubles of global investment names haven't helped this perception," said Dixon. In his view the level of assets is not particularly relevant.
Five or six years ago when Dixon Advisory took over administration duties of an Self Managed Super Fund from an accounting firm, often the fund's records and accounts arrived in a mess. Many hours had to be spent correcting the errors of omission or commission.
"In the last few years we have seen quality improve dramatically and nearly all operators seem to have a high standard," said Dixon.
He believes that most accounting firms are working hard on their SMSF services. Accountants either have decided SMSF administration is an important part of their business and are working on building a sustainable SMSF business or have outsourced their super fund administration to third party suppliers because they don't have the clients to build a decent small super fund business. They are all realising that near enough administration is no longer good enough.
There is an expectation that the Self Managed Super Fund sector will continue to grow. Alan Dixon believes the number of SMSFs will definitely continue to grow but believes the growth rate will slow once it reaches 35% or 40% of total super assets (currently 31%). When this level of saturation arrives he thinks the SMSF growth trajectory will mirror the super industry as a whole.
At this point in time Dixon welcomes the Cooper Review looking into the superannuation governance issues. His is concerned however that the SMSF space seems to lack focus when speaking to Canberra. The sector does not talk to government with a single clear voice and Dixon thinks this is a major weakness.
Dixon is particularly disappointed with some of the recent changes made by the Rudd Government some of them after recommendations by the Henry Tax Review. He particularly dislikes the recent changes to income tests for salary sacrifice super contributions and the drop in the Concessional Contribution thresholds to $25,000 ($50,000 for those aged 50 or over).
"Our financial planning practise has many middle class clients who willingly used salary sacrifice and higher Concessional Contributions to decrease spending and increase retirement savings," he said.
"We're now seeing these clients forced to reduce their retirement savings strategies and look for other tax effective investing tactics such as negative gearing," Dixon said.These changes may deliver a large increase in geared property investment, a decrease in super savings and only a minimal increase in tax receipts. "How is this good public policy?" he asked.
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