Baby, I’m Bamboozled

Hi Scott,

I just had a long chat with a financial planner. The topic came to rolling over to their actively managed SMSF, and I asked them about using a low-cost passively managed super fund instead. They then bamboozled me with talk of MERs, ICRs, fully-franked dividends and tax credits, and how these factors mean that their actively managed fund would perform better than a passive fund (even after fees). Can you enlighten me, please?

Terry

Hi Terry,

An example will work best here.

It’s like you go to your doctor for your annual check-up and say, “Do you think I should eat more fruit and veggies, and perhaps do 30 minutes of exercise each day?”

And the doctor replies, “Bugger that! I’m offering 20% off lypos this week. Wouldn’t you like some washboard abs, Tubby? Well, you can have them — next week. We’ll just suck that lard out like liquid. No lycra needed, and better than eating bloody broccoli!”

Bottom line?

The advisor just bamboozled you with bulldust.

There are three things you need to understand.First, finance is the only industry where (in most cases) the more you pay the less you get.

Second, you don’t open an SMSF (Self Managed Super Fund) for higher returns. Studies show that 80% of managed funds fail to beat a simple index fund over five years, principally because of the fees managers charge. There’s no way they can guarantee higher returns.

Third, you should walk away from any professional who tries to bamboozle you. At the Royal Commission this week, ASIC’s Peter Kell said the regulator had found that 90% of financial advisers who provided advice on SMSFs failed to act in the best interests of their clients.

Trust your gut!

Scott