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Trustee spotlight: Lessons from having our fund frozen

A difficult time for the Reids’ SMSF came when First Mortgage investments in WA collapsed in 1999 and their funds were frozen.



Western Australians Monica and John Reid set up their self-managed superannuation fund (SMSF) after a change in legislation in 1984 made it possible for public servants to take a lump sum from their super savings and use it to start an SMSF.

As a result, John started taking part in courses to teach him how to run an SMSF, and he started his and Monica’s fund in 1993, after convincing his accountant setting up his own fund was a good idea. John subsequently commissioned a law firm to write the fund’s trust deed, which was an important first step in the proper administration of the structure.

Monica became more involved from 2000 onwards when John’s work commitments meant it made sense for them both to become more closely involved in the way the fund is run.

At the time, John had been drawing a small pension, which was then commuted as his work commitments grew.

A difficult time for the Reids’ SMSF came when First Mortgage investments in WA collapsed in 1999 and their funds were frozen.

“We came out relatively unscathed because we’ve always ensured our fund complies with all the rules and our documents were always correctly recorded. But at the time we were worried we had lost our superannuation,” says Monica. 

The lesson anybody who's running their own super fund must appreciate is that it’s essential to be thorough with record keeping. Because our records were thorough we eventually got all our money back,” she says. 

The Reids developed their knowledge of investment markets by joining forces with a group of like-minded investors who all wanted to increase their knowledge. They have also worked with financial advisers.

“But it has been hard work. It is important to put in time and ensure all your records are accurate,” says Monica. 

Until recently the Reids’ SMSF has not invested in managed funds. “We like to be in control of our own money and that was a good decision during the GFC. Our adviser felt the market was overheating and he recommended we start selling assets, especially shares, at the beginning of 2008. This meant we didn't lose as much money as many in the financial crisis,” says Monica. 

John retired fully in 2013, which required a different approach for the fund given it was then fully in pension phase.

“We are no longer in a position where we can afford to take investment risks that could lead to us losing money because we can't get it back again. So now we have funds in term deposits as well as senior secured bonds with a good interest rate in addition to First Mortgage and Australian equities,” says Monica. 

“We have also now started to invest in some managed funds, including the AMP Capital Core Infrastructure Fund, as well as other fund managers,” she says. 

According to Monica, AMP Capital’s strong track record is one reason why the Reids have changed their attitude to investing in managed funds. 

“We looked at the track record and dividends the managed funds we have now invested in were paying and made a decision on that basis. We watch previous returns very carefully,” she adds.

To manage other risks in the portfolio, the Reids also carefully watch the market and don’t assume too many risks when investing in equities. They look for stocks with a low price-to-earnings ratio and seek shares with fully franked dividends.

In terms of the future for their SMSF, Monica says she expects to gradually move more of their money into bonds and possibly into managed funds. 

The Reids’ advice to other investors is to always use an accountant and SMSF administrator with a good reputation and experience in the sector.

“We now use Cavendish Superannuation. Before that we had a private accountant but in 2004 we moved to Cavendish and we have been very happy,” says Monica. 

“They run regular seminars for trustees and we know that our books comply with regulation and are approved by the ATO. I would recommend to anyone with a self-managed super fund to ensure their accounts are prepared by a company that really understands superannuation,” she adds. 

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