jonasson wrote:My broker did this for no fee, so it's worth asking.

jonasson wrote:I was alluding to the computershare advice "What are my options?

To process an off-market transfer form with Computershare you are required to pay the security validation fee.

You can choose to use a broker to perform the same service, but the broker fees are equal or more than Computershare’s fee."

Trio aftershock runs through SMSFs: the case has reignited concerns over the safety of self-managed super funds

James Dunn
From: The Australian
April 23, 2011 12:00AM

THE shockwave sent through the superannuation industry by the loss of about $170 million of super fund members' money in the fraudulent Trio Capital was felt keenly enough. But the aftershock -- the federal government's decision to compensate fully those Trio investors who were members of a public-offer fund, and not those who invested in the scam through a self-managed super fund -- is reverberating even deeper.

Assistant Treasurer Bill Shorten could not have been more explicit: there is no government compensation available for SMSF investors who placed their money directly into the Trio funds, because these investors were taking responsibility for their own investments.

That is a big call, and it certainly has caused a stir in the SMSF sector, which accounts for almost one-third of the nation's $1.3 trillion in superannuation savings, in almost 430,000 funds, with more than 815,000 accounts.

The Trio case has reignited concerns over the safety of the almost $400 billion held in SMSFs, on the basis that such a honeypot -- self-administered by individual investors and not regulated by the Australian Prudential Regulation Authority -- is fertile ground for not only fraudsters of the Trio kind, but the get-rich-quick advertising used by some providers of leveraged investments such as foreign exchange trading and contracts for difference (CFDs).

There is very little in which SMSFs are actually excluded from investing, says Peter Burgess, technical director of the Self-Managed Super Professionals' Association of Australia. "The SIS (Superannuation Industry Supervision) legislation is certainly not prescriptive in terms of what kind of investments SMSF trustees can and cannot invest in," Burgess says.

"Trustees are not permitted to acquire assets from a related party, and there are rules on 'collectible' assets such as artwork, so that these assets don't give rise to a personal benefit. But generally the government does not stipulate what assets SMSF trustees can or can't invest in."

The government is certainly prescriptive on how a SMSF is run. Under the "sole purpose" test set out in the SIS Act, the trustees must ensure that the fund is maintained for the sole purpose of providing retirement benefits to members. The trustees must "formulate and implement" an investment strategy for the fund, "having regard to liabilities, risk and return, diversification and liquidity".

This means everything you buy for your SMSF should have been "envisaged" in the fund's investment strategy. If the fund suffers a loss, the trustees can be fined if they're found to have breached those conditions. However, the proliferation of derivatives and structured products offering leveraged exposure to assets -- for example, CFDs and instalment warrants -- in the investment markets remains a grey area for SMSF participation, says Burgess.

Super funds can only borrow to invest where the borrowing is on a "limited-recourse" basis.

That means the fund makes an initial upfront partial payment of the purchase price of the asset, borrows the rest of the purchase price and progressively repays that borrowing, plus interest, through instalments.

"These arrangements are allowed because the fund is not obliged to make a second or further payment, and the lender has recourse only to the underlying asset. But any case where a lender wants to take a charge over any the fund assets -- that is, use the fund assets as security -- is not allowed," says Burgess.

Products such as instalment warrants, self-funding instalments and MINI warrants, which all use limited-recourse borrowing, allow SMSFs to use leverage, says Rebecca Fesq, vice-president, warrants and structured product sales at Citigroup Global Markets.

"Provided the trust deed is set up to allow the use of derivatives and leverage, MINIs, for example, allow the fund to go 'long' (buying) or 'short' (selling). The fund can benefit either from a rising price of the underlying shares or a falling price," Fesq says.

"The fund gets one-for-one exposure to the underlying shares, but at a fraction of a cost of trading the underlying shares directly, and the fund cannot lose more than the upfront payment.

"But the use of leverage is really only one side of the coin: an SMSF is more likely to use MINIs in hedging a portfolio position."

Fesq uses the example of a fund that has held BHP for a long time but is worried that, with a production report coming out, BHP might fall. "The SMSF could enter a short position over BHP. If BHP falls 5 per cent on the production report, the short MINI position will rise by 5 per cent -- effectively neutralising the fall in the share position," she says. "It can be a very effective, even perfect hedge."

CFDs and margin FX (foreign exchange) should be seen as "an essential part of a fund's risk management strategy," says Jonathan Barratt, managing director Commodity Broking Services.

"A lot of our SMSF clients are using FX to hedge the currency risk on their international share holdings," Barratt says. "It's actually prudential for them to do that, but I don't think the government understands the application of these kinds of products to hedging. All they can see is the leverage, which the funds don't really want to use.

"In the same way, CFDs can also be a vital part of an SMSF's hedging strategy, because they can provide a one-for-one hedge of a share position. Provided the use of derivatives is part of the fund's investment strategy, these are not only perfectly OK for the fund to use, you could argue that they are actually highly prudential."

According to ATO Interpretative Decision 2007/56, the potential requirement of an SMSF using CFDs to pay a deposit and meet margin calls from a cash account with the CFD provider does not represent borrowing and repayments, but rather contractual liabilities to make payments if and when required. Nor does the operation of the CFD bank account and the obligation to pay deposits and margins create a charge over any assets of the fund -- although some people might argue that an SMSF's cash is part of its assets.

At the end of the day, says Burgess, derivatives and instalment warrants represent 0.1 per cent of the assets of Australian SMSFs. "I don't think leveraged assets are over-represented in SMSFs," Burgess says.

G wrote:Does anybody hold SMSF money in Bank on say 5 years long term deposit, or it is not allowed?