Nothing but self-managed super?

By Jacquelene Pearson
I just realised it must be two years or more since I've been commissioned to write a superannuation article on anything other than self-managed super.
I used to be asked regularly to write about industry super funds, whether they were better than retail or wholesale offerings. Over the years I've written heaps of stories on super fees, super advice, how to select the right investment option, how to kick start, clean up and push forward your retirement savings.
Not recently, the only topic commissioning editors have been interested in for the past couple of years has been self-managed super.
According to SPAA, the SMSF sector's professional association, self-managed super is the fastest growing sector with $292.9 billion under management, "equating close to a third of Australia's $1.23 trillion superannuation industry."
Recent research indicates the sector is expected to continue its strong growth trajectory with one in 10 respondents in a recent survey who don't already run their own super fund indicating they intend to look at setting up an SMSF within the next two years.
Russell Investments managing director of intermediaries, Patricia Curtin calls these investors "coach-seekers". She says they make up 30% of the population but only one in five currently have an SMSF.
Wow! What a fantastic new market for all those intermediaries currently setting themselves up as SMSF specialists and experts.
The danger is that DIY super will be hijacked and turned into something very "off-the-shelf" unnecessarily expensive and providing far less autonomy and control to the trustee than it was ever designed to give. What a pitty that would be.
DIY purists usually don't have a financial planner, or if they do, it's been a strictly fee-for-service arrangement for a very long time. They have time on their hands and a high level of financial knowledge and investment experience. They take a daily interest in the markets and the management of their SMSF portfolio.
They may have help with the administration and compliance side of their fund's operations but they would very rarely abdicate power over investment selection and management to anyone, financial planner, platform operator etc. And they have high account balances, particularly in comparison with amounts held in industry super accounts, for example.
So as the SMSF sector winds up to cater for increasing demand for self-managed funds and as the big publishers write more and more stories about how popular the sector is, investors need to be increasingly wary. Be wary that it is really the right option for you. Be wary of any intermediary promising to make it easy and do your research before you decide to DIY.

Get off the money rollercoaster in 2011

The Reserve Bank looks set to keep its official cash rate at 4.75% at its February Board Meeting today. That's good news if you're already struggling under the weight of hefty home loan repayments and your Christmas credit card bill.
But why sit with your fingers and toes crossed each month waiting to see what the RBA and banks do with rates. Why not make 2011 the year you get proactive about your personal finances? Get off the rollercoaster and join the quiet revolution.
Yep, revolution. It seems Australians are spending less on their credit cards for the first time in decades and we're starting to save more.
The nineties and moughties fashions of living from month to month on your home equity and credit card seems to now be old hat. So what are the first steps you can take to take better control of your financial future?
The first step is to review your current financial position. If you don't know exactly what you spend each month then how can you possibly know if your current situation is sustainable. Here's an exercise to try. Keep all your receipts, for everything, for one month. At the end of the month add up exactly what you've spent on groceries, coffee, movie tickets, train tickets, clothes, medicine, petrol, pets, etc etc etc.
This will give you an excellent snapshot of whether you are currently living within or hbeyond your means.

BEWARE THE FAIR TRADING SCAM

By Jackie Pearson

Another banking scam to look out for is called the Office of Fair Trading Scam. It works like this.

The caller tells you they are from your bank and explains that your bank has been over-charging you for years. The reason for the call is that they need to verify your personal information so they can organise for the Office of Fair Trading, which has supposedly prosecuted your bank for over-charging, to provide you with a refund.

Before you can get that refund, the person calling says they need to issue you with a unique security code and to do that they will need to verify your account details.

The person then proceeds to read you the first four digits of your credit or debit card number and then asks you to verify the remaining 12 digits of the number. This is an easy trap to fall into because, well, who doesn't want their bank to pay them a refund for over-charging.

What most consumers don't know is that the first four digits of your credit or debit card are the same for every card issued by your bank. Those four digits are like the card BSB number.

YOUR BANK SHOULD NEVER, EVER ASK YOU FOR PERSONAL DETAILS OVER THE PHONE. If any caller asks for your credit or debit card number or for the three-digit security card number on the bank of your card, THEY ARE NOT REALLY FROM YOUR BANK.

When I received one of these scam calls on my home phone recently I asked the caller to stay on the line while I called my bank on my mobile phone to verify that they were, in fact, a representative of the bank. Guess what, they hung up straight away!

So repeat after me: "I am sorry, I never give my account or card details to anyone over the phone, even if you say you are representing a charity or want to GIVE ME MONEY. If you want my personal and confidential banking information, send me your details in writing so I can verify them with my bank". If you say those words, even on occasions when you are convinced the call is legitimate, you will stay safe and free of nasty scams!

CUSTOMERS DRIVE COMPETITION

I must say I am finding the banking competition inquiry a bit too cosy and friendly. Not a great deal of hard questioning from our Senators to the bankers or non-bankers or consumer reps.
As someone who has written about banking and interest rates from the CONSUMER perspective for some time now, the Treasurer's "reform" package and ideas being recommended during the public hearings are classic deck chair re-arranging.
Competition between banks and non-banks, banks and mutual deposit-takers such as credit unions will not improve until consumers demand a better deal.
Initiatives to improve financial literacy in this country over the past 10 years have not garnered great outcomes. Many Australians still do not understand their mortgages, realise how interest is calculated on either their savings or credit contracts. They don't even keep track of what they are earning and spending. Until that changes, the banks can continue to get away with peddling complex, incomprehensible contracts that bind the uneducated customer to their brand for longer than necessary.
It will be customers that make the financial services marketplace truly competitive and while we are all slaves to our offset accounts and credit cards, the level of awareness and effort needed to drive a truly good deal, simply won't exist.

THIS WEEK'S NEWS YOU CAN USE

What's been happening in consumer financial services in the past seven days? Here are some stories, events, items and issues you may not have noticed.

• Small super funds doing better than big: the Financial Standard reported that all super fund returns have recovered to an average of 6.6% for the year ending October 2010 but the big funds are still "failing to fire". How does your fund's return compare with the industry average? We're very removed from our super in Australia but it is worth keeping an eye on, at least quarterly and talking to your fund if you're not happy with the bottom line. It's also worth checking your employer is paying what they should and that you have adequate insurance.
• The Tax Office will take a look at 10,000 self-managed super funds: one area that seems to be bringing SMSF trustees undone is the offering of financial support to fund members and their relatives. Unless such arrangements can be proven to be loans they are deemed to be early access to your super, which is illegal unless provided under very strict circumstances. If you're an SMSF trustee make sure you have a regular look at the ATO website, it has excellent SMSF information.
• All eyes on Asia: according to a report from Cerulli Associates: global emerging market funds domiciled in Europe are set to double between now and 2014 as more institutional investors take advantage of the rapid economic expansion of the Asian region. Stay tuned for future Truepenny posts on how to build safe exposure to the Asian boom.
• Early victories for Climate Advocacy Fund: Australian Ethical's Climate Advocacy Fund has scored some early victories since its launch earlier this year. Two resource companies, Aquila and Paladin have agreed to greater disclosure around their carbon emissions as a result of lobbying from the new fund, along with the Climate Institute. Stay tuned for more information about the Climate Advocacy Fund and other responsible investment opportunities.
• Rates on hold? The Reserve Bank is expected to keep interest rates on hold at its December board meeting although more rate rises are expected early in 2011. This is the bank's last opportunity to adjust rates before its February board meeting. So at least mortgagees have two months of certainty.

MOVE TO A MUTUAL

By Jackie Pearson

Abacus Australian Mutuals has today declared that the best way to improve competition in the Australian banking sector is to "empower consumers" and provide building societies and credit unions with fairer access to funding.
In terms of empowering consumers, yes, it is important that the current Senate Inquiry into banking competition does look at the impediments and complexities created by the big banks to make it extremely difficult for consumer to switch.
In particular it needs to take a hard look at mortgage exit penalties and the "bundling" of mortgages with an array of other products.
Abacus CEO Louise Petscher said the group's submission to the Senate Inquiry recommended the continuation of the government guarantee on deposits up to $1 million and the reinstatement of a flat fee wholesale guarantee to help non-banks compete with the big mortgage providers.
Meanwhile there is one definite way that we can all cement the position of credit unions and building societies as the fifth pillar of Australian banking.
We can take a serious look at the service, interest, fees and deals being offered by our local credit unions. We can compare those deals, closely, with the ones currently provided by the big four. In most instances (there are some inferior credit unions) you'll find the mutual down the road has more to offer than any of the big four.
So why not open an account with a mutual and gradually switch over all your direct credits and debits until you're at a point where you can tell your bank what you really think of it. And end the conversation with "goodbye".

MONEY TOO TIGHT TO MENTION?

By Jackie Pearson
A new report by The Australia Institute explains why Australians are in so much debt.
The report, entitled Evidence versus emotion: how do we really make financial decisions? says that a large proportion of the community "confesses to not even knowing what their mortgage interest rate is or who their electricity provider is."
The report labels these consumers "the oblivious". By contrast a much smaller group are described as "human calculators" ... "hyper-vigilant in ensuring that they do not pay credit card interest, they compare phone plans and seek out things they need when they are on sale".
According to the report, orthodox or noeclassical economics is based on the idea that people behave rationally, whereas behvarioral economics is based on how people really do behave.
Orthodox economics makes some pretty interesting assumptions about human behaviour, according to the report, such as that "consumers have access to complete information, collecting and analysing information is costless... suppliers have no market power, there are no spillover costs or benefits associated with consumption decisions... people are motivated solely by self-interest".
The report goes on to say that behavioural economics indicates that, in reality, consumer behaviour is completely at odds with the above description. Instead we are creatures of habit, concerned about the approval of others, bad at computation when making decisions, want our actions and behaviours to be in line with our convictions,..."
According to the study's results:

• 28% of the population are over-confident. They think they are better-than-average at making financial decisions but their actual behaviour suggests otherwise;
• 18% admit to being overwhelmed but think it's too difficult to take steps to get a better deal;
• 30% are playing catch-up: don't pay their credit card balance each month and continue to use it to pay for essentials;
• 41% are oblivious: unconcerned or unaware that they could, in fact, get a better deal on their banking, mortgage or phone plan;
• 44% of people who took out a mortgage recently are described as 'eternal optimists': they took out the loan without considering the possibility of losing their job or getting sick

The other three categories are compartmentalisers, spending hawks, and, of course, the human calculators. 
So which group do you fit into? Are you a human calculator or honestly oblivious when it comes to your finances, or somewhere in between?
Do you know, for example, how much money you owe on your credit cards and how long, if you stopped making new purchases on those cards today, it would take you to pay them down to a zero account balance?
Can you honestly answer whether you are beating the bank when it comes to paying off your mortgage or are you completely behind the eightball, making regular redraws and not quite sure how many more years it will take you to own your home outright.
Todays headlines are talking about the European sovereign debt crisis pushing to global economy into stage two of the Global Financial Crisis in 2011.
Many Australians are, unfortunately, having their own personal financial crises right this minute. Another interest rate increase, a job loss or illness and they could be pushed over the edge.
According to The Australia Institute 52% of the respondents who had experienced financial difficulties in the past year said they did not pay off their credit cards in full. Forty one percent of all respondents said if they were in financial difficulty they wouldn't talk to anyone about it but would attempt to sort it out themselves.
In recent years the Commonwealth Government and Australian Securities Commission have been pouring substantial funds into improving our financial literacy. The Australia Institute Study would seem to indicate that we still have a long way to go.
It also adds evidence to the argument that many people don't understand the increasingly complex nature of the financial transactions they enter into. I commend the study to you. You don't have to be a rocket scientist to understand it and it could be a helpful starting point for changing your attitudes to your own financial situation.

Beware bank service scam

By Jackie Pearson
I had a call on my home phone at lunch time today from a woman claiming to represent the Australian Bankers' Association.
She was asking me a series of questions about my satisfaction with my current financial institution.
I presumed she was carrying out genuine market research in the wake of the NAB payment system meltdown so I commenced answering her questions as sincerely as possible.
I am an NAB customer so, to be honest, she copped an absolute earful. I explained that I could not believe a highly-profitable financial institution with the brand-new customer-focussed slogan "Less take, more give" could have systems that would allow such chaos to ensue, leave customers stranded (not to mention customers from other instos) and then take out full-page newspaper ads to say gee I'm sorry before the problem was already fixed.
Anyway she only asked me two questions before hanging up. I can't quite figure out why the conversation didn't continue.
Then it occurred to me that maybe it wasn't the ABA calling at all. So I called them, as a consumer, not a journalist.
They told me the "research" call was definitely a scam. The ABA is not currently conducting phone-based market research to check on customer service satisfaction.
So if you get such a call, give no information, particularly your personal banking details, accounts, PINS etc.
We now know that even a bank as big as the NAB can "misplace" millions of payments and take five days to find them. However, we also know banks don't ever ask you for personal account details over the phone so never fall for the "market research" trick.

NAB PAYMENTS MELTDOWN MORE THAN A GLITCH

I cannot believe so many mainstream media outlets are continuing to refer to last week's meltdown of the National Australia Bank's payment system as a glitch. People were left stranded around the country with no cash.
The bank's solution was to offer "cash advances" of limited amounts if you could make it to a branch with proof of payment.
CHOICE has spoken out today (five days after the start of the problem) to say the payment systems our banks are relying on are out-of-date.
Surely this is a governance issue. As consumers we are essentially told to have our pay credited to our account automatically. That's the way the world works so I would think that puts a pretty strong onus on the institutions we entrust with our funds to ensure, even guarantee, access to those funds.
Perhaps it's time the banks used some of their enormous profits to actually build and provide the infrastructure and technology we supposedly pay all those fees to finance.
Or perhaps it's time consumers voted with their feets and, once restored and all funds make it into the accounts they should be in, we close our NAB accounts and find a more trustworthy keeper of our hard-earned money.