Investing my personal super in the Montgomery Small Companies Fund
A question we often get asked at the Montgomery office is whether one can invest their personal super directly in our suite of strategies. Whilst Montgomery is a specialist equity investment manager with an Australian Financial Services License (AFSL), we are not a super trustee. A super trustee therefore sits as an access medium between investors and investment managers, and on this basis have a unique set of responsibilities.
Examples of super trustees include Industry Super Funds (such as Australian Super), Retail Super Funds (such as Sun Super), Corporate Super Funds (such as an Employer Fund), Self-Managed Super Funds (or SMSFs), eligible My Super Products or even Master Funds (such as Netwealth). According to the Australian Prudential Regulation Authority (or APRA), a breakdown of the super trustee industry is summarised in the table below by type and total assets, as at 30 June 2020:
|Assets (Billion $)|
|Entities with more than four members||1,919.6|
|of which: Eligible rollover funds||3.2|
|Small APRA funds||2.1|
|of which: Pooled superannuation trusts||149.9|
|Self-managed super funds||733.1|
|Exempt public sector superannuation schemes||146.5|
|Balance of life office statutory funds||62.8|
|Retirement savings accounts||1.5|
Unfortunately, not all super trustees have an open investment menu for those that utilise their offering. For example, whilst some of the Industry Funds have opened their investment menu for members to trade ASX listed securities (namely those listed in the ASX 100), you still cannot access a complete investment universe of single sector strategies outside of those that form part of an allocation in their multi-asset funds. However, there are some providers that look to facilitate a more open investment experience for their investors. Such super trusts are commonly known as Master Funds or “Wrap Platforms.” Readers would no doubt be familiar with some of these platforms as there are a number that are independently listed on the ASX, such as Netwealth (ASX: NWL), HUB24 (ASX: HUB) and Praemium (ASX: PPS). Furthermore, there are also platforms that are not listed as standalone businesses but are aligned to larger institutions you also would be familiar with, such as BT Panorama (Westpac), Macquarie Wrap (Macquarie) and Colonial FirstWrap (CBA).
What are the benefits of using a wrap platform?
- Wider investment menu: A wrap platform allows investors to access a broader investment menu beyond what most traditional Industry, Retail and Corporate Super Funds will provide. These include your standard range of multi-asset strategies but with a variety of different managers offering these solutions (i.e. not just the Super Fund themselves and their internal investment team). They also tend to offer access to a diverse range of single sector strategies across a wide range of asset classes, cash solutions including term deposits and the ability to trade listed securities (mainly in the ASX 300 but sometimes also global large cap stocks). By way of example you can access the Netwealth Super broader investment menus here.
- No investment minimums, no applications: A big consideration in often making the decision to setup a SMSF is the size of your super balance and whether you can access a variety of investment solutions based on their prescribed investment minimums directly. By way of example, the Montgomery strategies have a direct investment minimum which depending on the Fund starts from $25,000 but can be as high as $1,000,000 for our wholesale offerings. As a wrap platform pools their underlying investors’ assets together, they can invest below the usual prescribed direct investment minimums. In addition, given the investments are made under a custodian structure, outside of setting your account up initially there is no need to fill in an individual investment application each time you want to make a new or amend an existing investment via a wrap platform.
- Reporting: A pain point often for SMSF or individual clients who invest in unlisted strategies outside of trading platforms such as CommSec is that they will have to seek investment and tax reporting directly from the manager themselves on a standalone basis. Whilst there has been some great wealth portal innovations to help people get a holistic view of their assets (such as MyProsperity), there isn’t an easy way for a SMSF or individual to aggregate complete portfolio level reporting for direct unlisted managed funds, particularly if they have a number of them! A big advantage of the wrap platform is their technology and ability to aggregate all the usual reports under the one application for one portfolio view. They achieve this by collating all the key data from the managers that are represented on the platform on your behalf.
Conversely, what are some of the negatives?
- Fees: For all the optionality a platform provides around ease of use, wider investments, and reporting there is a cost. This cost is generally represented as a tiered percentage based on the balance of your account and has an amount which the fees caps out at that varies platform to platform. This cost is of course on top of any fees associated with the investment strategies you choose via the platform or any other fees for trading and other services the platform provides. Like many service providers, some of the platforms have sweet spots around their pricing and can favour different investors depending on the size of their super (or investment) account and the number of accounts they wish to open (which can generally be family linked to reduce administration fees). Like when considering n SMSF, an investor will need to weigh up these costs versus both their needs and amount they would like to invest on the platform.
- Access and control: Not all of these platforms are open to the direct investor. In fact, many of these platforms have to be accessed via a financial adviser. In my experience the only platform in the market that has a designated investor service for private, unadvised investors is Netwealth. Of course, other platforms may facilitate direct investment without a financial planner on a case by case basis. On this front too, investing via a platform creates a world of investment opportunities for a prospective investor but also a level of complexity that doesn’t suit everyone. On a similar basis to how a SMSF may not be for everyone, many investors may not want to completely take control of every element of their super via a platform and hence favour a less complex investment solution.
- Not all platforms are created equal: The user experience platform to platform can very significantly. Moreover, the newer entrants in the market have grounded their offering in more nimble technology and have innovated the platform experience to develop a user friendly front end application with tools and smarts to make the investment experience more seamless. The older incumbents whilst investing in their offering don’t have the same technological flexibility as the newer entrants to the market, so generally are behind from a useability perspective. Also, and critically, the ownership of the investment platforms does often have consequences around the openness of the investment menu and what strategies investors are able to gain access to.
Pleasingly, the passing of the one-year anniversary last month for the Montgomery Small Companies Fund also coincided with the strategy now being made available on a larger number of super platforms. As of 1 November 2020, the Montgomery Small Companies Fund will be available via Netwealth, HUB24, BT Wrap, BT Panorama, Macquarie Wrap and uXchange. If you would like to find out more about investing your personal super in the Montgomery Small Companies Fund via Netwealth, please click here. Alternatively, to access a list of all the platforms the Montgomery strategies are currently represented on, please click here.