THE classic moment to visit a financial professional for the first time is when you are running into retirement. For them, this is the moment to make the inspired suggestion that you should run your own super. A suggestion accompanied no doubt by some flattery about how easy it is for even very average investors to achieve some fictitious annual return that will double your money every six years and triple it every 10.
Retirement is supposed to be fun, but how much fun is it going to be when some self-interested advice dumps you, on the eve of a life of leisure, with a sharemarket responsibility you didn't really expect or want; that you have no aptitude for and that does little but reveal you to your previously respectful and loving spouse as a sharemarket incompetent. It's no fun at all.
There are practical issues involved in managing your own retirement and if the self-managed super fund industry and its proponents were up front with it all, a lot more of you would be in hot pursuit of your giggling and naked spouse in the living room, rather than hunched over a trading platform.
What about risk? What happens when it goes wrong?
Looking after someone else's money is a volatile responsibility. Volatile not just because shares go up and down but because relationships do too. Looking after other people's money can be very divisive. If entered into with eyes wide shut, it can put a completely unexpected, unwanted, unnecessary and avoidable pressure on a relationship.
In a post-Financial Services Reform Act environment there is a huge bureaucratic structure to protect investors from their advisers and advisers from the investors. Everyone's personal financial circumstances are documented and because every bit of personal advice has to be noted, it is deliberated over with some care.
But what the legislation doesn't control are the hoards of people who are trading and whose funds are being traded without advice. What about them? What about all the people relying on the do-it-yourself investment skills of their spouses, parents, business partners or friends?
Where's their bureaucracy? Where's their protection? What are they going to do when they or their loved ones monumentally cock it up?
And what about the protection for the best intentioned, but not so lucky, self-managed fund manager himself? For the person who has found themselves responsible for ''other people's money'' in between having a life. What happens if they divorce, split up, or fall out with their beneficiaries, their spouse, de facto, relative, business partner, friend or child and those people blame them or extract some financial or reputational restitution following the destruction of their funds in the hands of a rank amateur.
You need to have a really good think before you decide to manage money on your own or let someone else in the family or business do it for you. It is difficult enough not losing money in the sharemarket, let alone making it. The sharemarket is not a gravy train, there is no free lunch and to do better than a boring managed fund that charges you 2 per cent, you had better be good. Those guys know what they are doing but struggle to impress. Why is that?
Its not because they charge too much - 2 per cent is fantastic value if it frees you up from the investment burden and leaves you every day, evening and weekend to pursue the spouse. They struggle because the long-term return on the market after tax, inflation and dealing costs isn't understood. It's because past returns really don't have any bearing on future returns. It's because it is risky. It's because the market can go up 80 per cent or down 45 per cent in a year. It is because it is difficult.
If you really think you can do better, then go for it. It's a fantastic game. But if you're doing it because some dipstick professional thought it would be a good idea for you to squander the freedom of your retirement for the life of an investment incompetent, then think again.
It may be a good idea for him. But for you?
Marcus Padley is a stockbroker with Patersons Securities and the author of the daily sharemarket newsletter Marcus Today. For a free trial, go to marcustoday.com.au
