There are now more ways to invest your superannuation than ever before. As you begin exploring some of these newer types of choices or solutions,
you will probably come across terms like exchange traded products, roboinvesting and managed accounts. But what are they and how can you use them for your superannuation?
An ETP is a type of managed fund or superannuation fund investment option that is tradable on a stock exchange. Exchange traded products may also be called exchange traded funds.
ETPs are becoming so popular because they combine some of the best benefits of owning company shares and managed funds by allowing you to
access a portfolio of securities and trade units in that ETP on the stock exchange easily and cheaply.
But being tradable on the stock exchange does not mean it's listed on the stock exchange. By this we mean that you are simply using the stock exchange's trading platforms to buy and sell units in the ETP. While the price of a regular listed company share is determined by the demand for it, the price of units in an ETP is determined by the underlying value of those units.
Most ETPs are purpose-built to replicate a particular index, such as the S&P/ASX 200 or the S&P 500, which covers the US stockmarket. But some track niche indexes only followed by that particular ETP, while others are regular actively managed funds that just happen to be accessible through the stock exchange.
ETP portfolios may include Australian shares, international shares, fixed-income securities, listed property trusts, commodities like gold and precious metals, currencies, or a combination of those asset classes.
The structure of ETPs means they can often operate at much lower fees than regular investments. For example, ETPs charge on average one-third the regular investment fee of other investment funds, and ETPs that invest into plain vanilla indexes like the S&P/ASX 200 might charge fees as low as 0.10%pa.
There is no entry cost when you invest into an ETP or exit costs when you sell your units. But you may have to pay broking charges and the costs of changing investment allocations in the fund.
Robo-investing, sometimes called robo-advice, is an online financial planning and investment service that offers you recommendations, usually based on a computer algorithm.
The way it works is that when you engage a robo-investment provider, they will usually ask you some questions designed to figure out your risk profile and which types of investments interest you. This information is assessed by the algorithm and, based on this, it will recommend an investment package.
This investment package will usually be an investment fund that has been specifically designed for people with a risk profile like yours. It is usually assembled using a suite of low-cost managed funds such as ETPs. Because robo-investment services are providing you with an investment with a certain amount of "tailoring", they will charge a small fee on top of the investment fees already built into the ETPs they use to assemble your investment package.
Research by Rainmaker Information has found that these fees can average just 0.4%pa, including an average 0.3%pa for the advice and recommendation service and access to their support and smart device apps that you can use to monitor and manage your investments. Some robo-investing services also have a premium higher-fee service that allows clients to access human financial advisers.
Managed accounts are the latest generation of investment administration platforms that generally have very sophisticated investment menus and more advanced taxation management features. They are built on the latest web-based cloud computing technology that lets you monitor and manage your investments using your computer or smart device, often in real time.
Managed accounts generally cost a little bit less than regular superannuation funds, noting that they usually charge an administration fee of about 0.5%pa plus the investment fee that goes to the specific investment choices you have made.
Some managed accounts are now structured as a superannuation fund, so you can choose them as your superannuation provider. This means the managed account is connected to a regulated superannuation fund that pays tax on your behalf.
|ETPs can cost much less than regular super fund investment options
Research by Rainmaker Information in 2022 revealed that while the typical investment fee for an Australian shares superannuation fund investment option is 0.8%pa, the average investment fee for an Australian shares ETP that tracks the S&P/ASX 200 can be as low as 0.1%pa. It only makes sense to pay the higher fees if your superannuation fund regularly beats its market index. If it doesn't, investing in the ETP may be worth considering. The good news is that many superannuation funds offer ETPs in their investment menus or in their Member Direct option.
|How to package ETPs, robo-investing and managed accounts into your superannuation
ETPs, robo-investing and most managed accounts are just investments, meaning they are not superannuation funds. If you want to use these investments for your superannuation, you will need to place these investments into an SMSF or superannuation managed account.
If you don't, your investment returns will be taxed at your regular marginal tax rate, which could be as high as 47%, rather than at the concessional 15% superannuation rate.
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