While this knowledge doesn’t stop some people (especially men) from indulging in this foolishness, most of us know that the most sensible and safe approach is to place our health and well-being in the hands of those qualified for the task.
Why is it then, that when it comes to the task of managing financial affairs, particularly retirement plans, so many people see no problem in attempting to devise and manage their own strategies themselves?
The Australian Taxation Office (ATO) did the financial services industry a dis-service in electing to refer to private superannuation funds of four or less members administered by them as self-managed superannuation funds (SMSFs). While there may be some people capable of doing so, the vast majority of SMSF trustees have neither the necessary knowledge nor the capacity to manage a super fund themselves.
Fortunately, most people recognise this reality and engage the services of professional financial advisers possessing the requisite expertise in the area of superannuation planning and management, especially for SMSFs.
While this has probably been the case since the genesis of SMSFs, the raft of recent legislative changes affecting superannuation has taken the complexity of managing SMSFs to a whole new level. And, given the potential penalties for not complying with superannuation regulations, there is little question that this is now something best left to the experts.
This is not to suggest that having a SMSF is not an appropriate solution. In fact, when it comes to the differences between a SMSF and a public-offer fund, it is these differences that determine whether an SMSF is the right choice. But, before we get into when a SMSF is appropriate, let us first dispel a few myths about when a SMSF is needed.
One common misconception is that you need a SMSF if you want to invest in direct shares. While this may have been true at one stage, most of the better public offer funds, and even some of the industry funds, offer the opportunity to include direct equities in your superannuation asset mix.
Another misconception is that you need to have your own fund in order to have tailored insurance solutions through your super. Again, these days, most of the better super funds allow members to apply for their own chosen levels of death, total and permanent disablement and income protection cover.
The ability to enhance your estate planning requirements is another reason often quoted for the establishment of a SMSF. As a great many super funds now allow non-lapsing binding death benefit nominations, while this may have been an advantage of SMSFs in the past, it is no longer the case.
Often cost cutting is proffered as a benefit of having a SMSF. With the costs associated with the bulk of superannuation vehicles being driven down, largely through competition, and the compliance costs associated with SMSFs, such as annual financial statements and tax returns, an annual audit certificate and annual supervisory levy, quite often a SMSF is actually more expensive than a good public offer fund.
But, perhaps the greatest falsehood proposed for the establishment of a SMSF is superior investment returns. Unless you intend to limit the investment universe of your super to direct property, cash and direct Australian shares, you are almost forced to utilise the products of professional investment managers. This being so, any thoughts of being able to outperform the professionals would be seen as foolhardy.
So, if there are so many reasons not to have a SMSF, who would want to establish one?
The answer to this question is relatively simple. You need a SMSF is you wish to do any or all of the following:
1. Combine the purchasing power of your superannuation balance with someone else, such as your spouse or children (up to four members);
2. Sell assets to, or buy assets from, your own superannuation fund. Note that acquisition of assets from fund members is limited to ‘listed securities’ or ‘business real property.’
3. Borrow money for investment purposes through your superannuation. Note that strict rules apply to how and for what purpose such borrowings may be made.
In the current regulatory and investment climate for superannuation, any other reason for the creation of a SMSF, is, quite simply, not a reason.
Wayne Leggett is principal at Paramount Wealth Management.
Dont forget every investor has a money back gaurantee on any market or high risk strategy. You know…..the FOS guys award investors every time without fail. Its beautful for the punter out there & you the MUG adviser cant represent yourself. Bend over IFA’s!…..just hand over your wallet, house & car first thanks.
Also (from previous post) with mandates, you don’t see some of the hidden fee grabs by retail.
In short, there are many reasons TO have an SMSF, mine is stay away from the large fee probing financial institutions and corrupt industry funds.
Tim, if you are across all the trustee responsibilities, management of taxation components etc, good on you.
Some people don’t want degree of difficulty and are quite happy to receive some assistance in this regard.
I always find sweeping generalisations to be remarkably accurate and valuable. Thanks
The only reason to set up an SMSF should be because you want to manage it yourself. That is why they are called Self Managed Super Funds! Unfortunately most SMSF’s seem to be set up because they are more profitable to the adviser be they Accountant or Financial Planners.
Wayne I also disagree with your comments in relation to risk insurance and estate planning. If you want allocated pensions for members you are trapped in whatever fund the trustees put you in for a pension unless the recipient has met a full condition of release. You can’t rollover the pension benefit. The trustees of public funds will also manage their business risk first and your family needs second.
With direct shares on platforms you cannot trade at your discretion and in the market, you are forced to say trade twice a week at 11am in many cases. You don’t have full access to all insto’s for a TD, you are restricted to the platform investment list.
Wayne, I disagree with your comment that “quite often a SMSF is actually more expensive than a good public offer fund”. Once a client has sufficient funds in super, SMSF’s are typically much cheaper. I understand your comments that SMSF trustees should seek professional advice but so many have been burnt by bad advice or charged fees for no service, that they would rather do it themselves.
I do wonder where people get their data from. Less than 20% of SMSFs get advice from planners – and the likelihood is this will decrease with the new accountants licensing – yet SMSFs continue to outperform ALL other types of super…..