SMSF Investing Education & Strategies

Managed Share Portfolios

As mentioned in the DIY Shares page, the Australian share market is the most popular place to invest for trustees of DIY / Self Managed Superannuation Funds, with around 30% of all SMSF assets invested there.

However, some trustees simply don't have the time or the inclination to research the sharemarket, or to follow a model portfolio, or to trade themselves. For these trustees, a fully managed share portfolio can be an ideal solution,  but still with individual flexibility.

There are essentially two main categories when it comes to Managed Share portfolios:

Full Service Broker or Adviser - Managed portfolio services

A full service broker or adviser is one which will provide individual stock recommendations and advise you on the ongoing makeup of your stock portfolio, however you still remain in charge of the decision making process. These are generally non-discretionary, which means that they have to get your approval first before implementing any trade. If you don't want to take some of the advice, you don't have to, and you can generally trade your own stock selections along the way.

You will pay for this advice however, either by a full service brokerage rate (around 0.5% to 1%), or an ongoing advice fee (typically around 1%pa) or even a combo of both. Note that some brokers offer a discretionary service (known as MDA's, or Managed Discretionary Accounts) where you sign an MDA agreement which allows the broker to trade on your account without the need for you to approve each trade.

You will instead have online access to your account's reporting where you can follow its progress. You can generally stop the broker from trading on your account at any time.

Separately Managed Accounts

The alternative to the above is a Separately Managed Account (or SMA).  An SMA is a cross between a managed fund and an MDA. It is offered via a Product Disclosure Statement (PDS) just like any other managed investment product, and is generally managed by a professional fund manager, however you as the investor receive an individual share portfolio that you can view online 24/7.

You are the underlying beneficial owner of the shares, you do not inherit any capital gains tax liabilities on entry (unlike managed funds) and you can transfer your stock out of the service at a point in the future if you wish. Most SMA's these days also enable you to overlay some of your own preferences onto the portfolio. For example, you can state on your account that you don't want to buy any BHP shares, as you already have a large parcel as an individual. In this case, no BHP shares will be purchased on your account, even though the manager may have BHP in their model portfolio.

Brokerage in SMA's is generally similar to discount or institutional brokerage (0.1 to 0.3%). Ongoing management & admin fees (bundled together) vary between about 0.9% to 1.5% pa, and some may also have performance fees.