Your Investment Platform

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When it comes to investing, whether it is in your personal name, joint name, company account, family trust or self-managed superannuation fund, there are four key platforms we are going to explore. 

These four are:

1. Broking investment account
2. Micro investing account
3. Managed fund investment account (unlisted account)
4. Wrap investment account

My estimation is that in your lifetime, you will deal primarily with the first one, perhaps the second and third one, and ideally not the fourth one unless 100% necessary. 

Let’s dive in!

(1) Broking Investment Account

An online broking investment account with Commsec, NABtrade, E*TRADE and other similar names is where most people start. You can open a broking investment account with full service advisors like Macquarie, Bell Potter and other companies, with the main difference being costs and service standards. As most online broking accounts charge between $30 to $40 per transaction and no or low ongoing investment account keeping fees, most people prefer this option in the earlier stage of their investment journey and explore full service advisors at a later stage.

When you establish a broking account, you are starting a relationship with a sponsoring broker and all your shares will be broker sponsored, meaning they will be held in one place for you. You will be given a unique number specific to your broking account called a holder identification number (HIN). This number will start with X and have ten numbers immediately following it. Any investment you buy through your broking account will be linked to this number.

If you choose to be issuer sponsored instead of broker sponsored (there are only these two modes available), your shares will not be held in one place and each will be given a different registration number called a securityholder reference number (SRN). Choosing to be issuer sponsored rather than broker sponsored can get messy and is not a path for the feint hearted. For the sake of keeping things simple, let’s assume you chose to have all your shares sponsored with a broker.

The main way people invest is through a stock exchange, otherwise called the public market. In our case, the Australian Stock Exchange (ASX) is the primary stock exchange you will use. For more information about different types of investments, please find go to the Your Secure Investments and Your Growth Investments.

Once you have a broking account with a HIN established, you are ALMOST ready to start investing! The next most important part of having a broking account, is knowing how to pay for and settle for each “buy” transaction. You MUST have a bank account linked to your broking account with money in it BEFORE you buy any investments. When you are buying or selling an investment, you are exchanging legal ownership of the investment for money, which is a process called settlement. 

The system which completes settlement for your is called the Clearing House Electronic Subregister System (CHESS) and this happens two days after a transaction takes place, otherwise referred to as T+2. Most brokers will not let you buy an investment unless you have a linked bank account with sufficient money available in it, so this is an absolute GOLDEN RULE for you to follow. 

Once your investment has been purchased for you, you will receive a contract note confirming the dollar value paid, the transaction cost (otherwise called the security trade fee or brokerage) the number of shares, the company you purchased and all other details relating to your investment choice. Whatever you do, make sure you understand the costs of your transaction BEFORE you buy or sell any investment. 

Within a week (or thereabouts) you will receive information from your investment’s share registry asking whether you would like your dividends (if there are any) paid into a particular bank account or whether you would like your dividends automatically reinvested back into your investment. There will be other information to provide including your tax file number, preferred email address, mailing address and other personal details, although there is a good chance your sponsoring broker will have already provided this information.

(2) Micro Investing Account

Before you ask yourself “What on earth is a micro investing account?”, you may have heard of this already as this type of investment account became popular in the US several years ago through a company called Acorns. 

The concept of Acorns is that you link your bank account to the Acorns app on your phone and each time you make a transaction on your bank account, let’s say you spend $6.90 on a latte at Starbucks, the Acorns app will “round up” that transaction to $7.00 and deposit 10 cents from your bank account into your investment account with Acorns. 

The Acorns investment account is a pre-selected spread of diversified investments, which you can choose from between conservative through to high growth, and over time, you are essentially investing all of your “loose change” by making micro buy transactions of a diversified investment portfolio, that gradually grows over time. 

10 cents here, 30 cents there. As each micro transaction is made, you would hardly even notice it, but the progressive accumulation of cents turns into dollars and grows in line with your investment portfolio choice.

Acorns did launch in Australia and changed into RAIZ, and there are several others out there including a high growth disruptive technology focused app called Spaceship, and whilst I personally wouldn’t provide any external party with my bank details to enable the “rounding up” function, they are a helpful way to facilitate smaller investment transactions. 

Costs are important to watch as most of these micro investment accounts charge a monthly maintenance fee (ie, $1.25 per month) up to $5,000 and once you have invested over $5,000 they will charge a percentage (ie, 0.275%) deducted monthly. Assuming you had invested $10,000, then your total annual costs would be $27.50.

(3) Managed Fund Investment Account

Separate to ASX listed investments which are bought through broking investment accounts, there are unlisted investments such as managed funds. Managed funds are essentially a diversified portfolio that is actively managed and you buy units in this portfolio, which are held under a unique reference number in a managed fund investment account. 

Sometimes you get lucky and if you hold one or two different managed funds created by the same investment manager, then you may have one managed fund investment account which shows both holdings, but usually you end up with a managed fund investment account for each different managed fund that you hold units in.

To apply for managed funds, you usually complete a detailed application form several pages long including copies of certified identification to prove you are who you say you are, provide bank account details for the investment manager to withdraw cash from or you can elect to transfer the funds across to the investment manager, and once completed, you are issued with a holding statement.

The entire process can take approximately two weeks to be completed and it can be a bit cumbersome, but it also opens up more investment options to you including unlisted commercial property, private equity, hedge funds, proactively managed Australian and international investment portfolios and a whole host of other options.

(4) Wrap Investment Account

Wrap investment accounts are an interesting choice of investment platform and not one I would endorse unless you desperately want access to some very unique investment products and are happy to pay through the nose for expensive reporting services that quite frankly, I do not believe justify the costs.

An important part to note about wrap accounts is that the majority of these do not register the investments in your name, these investments are held by a custodian on your behalf, so they can be extremely tricky to pull apart if you ever decided you wanted to exit the wrap investment account but retain the investments within it. Additionally, sometimes you cannot retain the investments and are required to sell everything in order to withdraw the portfolio, so that’s also important to keep in mind.

It is increasingly rare these days that an investor would use this type of investment platform to invest in their personal name, however for family trusts and self-managed superannuation funds, the reporting requirements are of more value, so some people decide that the costs and structure (ie, custodial basis) outweigh the costs. Again, without going on too much more about it, I still would not endorse this investment platform.