Self Managed Super Funds
Is a Self-Managed Super fund appropriate for you?
In recent times, Self-Managed Super Funds (SMSF) have become very popular and, for many investors, they represent an excellent vehicle to manage their retirement assets.
It is my belief that for many Australian’s who have an SMSF, it is not the most appropriate structure. Truth be known, often the person recommending the fund benefits greatly. As a financial planner, a SMSF client is gold as they are generally high revenue clients. The same applies for accountants and those involved with property investment, we are all incentivised to recommend an SMSF. Is this best for the client? Often the answer is yes, it is a great option, however, in a lot of other situations, I’m less confident that an SMSF is appropriate.
If you are considering setting up an SMSF, the first thing you should do is read the ATO guide “Setting up a self-managed super Fund”.
The ATO lists 4 primary considerations.
1. Consider whether you have the time, knowledge and skill to manage your own super fund, as well as having the assets and money to make the fund viable,
2. Compare the costs and benefits of running an SMSF with other retirement saving options,
3. Make sure you are setting up the fund solely to pay retirement benefits to the members or the members’ dependants in the event of the member’s death,
4. Check you understand what is involved in managing your own fund and what it means to be a trustee.
These considerations highlight a few key points for me. Firstly, not everyone has the knowledge and skill (or inclination) to run an SMSF. Although you are expected to seek professional advice, the responsibility and accountability can’t be transferred and the buck ultimately stops with the trustee.
Having sufficient assets to make the fund viable is also very important. My licensee won’t even let us contemplate an SMSF with anything less than $200,000. This is a minimum, and in some cases may not even be sufficient.
The second consideration involves comparing costs and benefits. It should be noted that it is not cheap to establish an SMSF, the ATO provide an establishment estimate of $7,000. In addition, financial planning fees are usually higher for SMSF clients and you will also incur accounting fees. This is on top of all fees associated with the investments within the SMSF.
If you are planning on investing in traditional Super assets such as term deposits, managed funds and direct shares, the cost/benefit can be easily assessed. If you are choosing to invest in other assets that can’t be accessed through a Superannuation platform, most commonly direct property, then it is more difficult to compare.
Self-Managed Super Funds can be a terrific option, but are not one-size-fits-all and you should seek financial advice before establishing one.