I began my Aussie employment career with a small accounting and financial planning firm and quickly learned the usefulness of an SMSF, especially for small business people.
From hands-on experience and education at the time, it was clear to me that you needed a decent balance and regular contributions to make a SMSF work for you from an expense viewpoint. When it came to my own money I thought that as a budding financial planner I should walk the walk so I set about reaching a goal of $200,000 in superannuation between my wife and I.
I only came to Australia in 2001 with a very small UK pension fund, having worked in the Middle East for eight years with no pension contributions. So I knew I was playing catch-up from the very start.
My first priority was to invest aggressively while I was still young(ish) and at that stage you could not leverage assets directly inside an SMSF. So I opted for a retail superannuation fund and over the next decade I used a portfolio that included a geared share fund most of the time, managing not to get too burnt during the GFC and riding the wave in the rebound.
I reviewed my fund every six months and stuck to my aggressive strategy, but as is often the case, you get too busy taking care of clients to manage your own affairs. By the end of 2011, I realised we had more than achieved our objective so now was the time to review our options.
So again I decided to walk the walk and when an opportunity came up for us to invest in a property development, something which we could not do in our retail fund, I spoke to my wife and we agreed that an SMSF would be our best option going forward.
By waiting until I had a decent balance I was able to have a well-diversified portfolio, and thanks to product enhancements, I have a geared ETF to replace my previous managed funds, direct Australian equities and some international ETFs and managed funds as well as my property exposure.
Another benefit of waiting was that I had set up my insurances from the very start in my retail super fund and I know if I had gone with an SMSF from the start I would have hesitated to pay for insurances from a small balance on top of the admin fees. Cancelling cover when moving to an SMSF is a mistake that I see many SMSF trustees make and warn all against. Those who know me can attest to the fact that I am rather large, and being clinically obese I struggle to get insurance cover. By setting up the insurances earlier, I can now keep a small but decent balance in my retail fund and retain those insurances that cannot be replaced.
I still have 25 years to age pension age and 15 to my target transition to retirement, so now as my fund grows I can seek opportunities and use the flexibility of my SMSF to invest my way in what I want with no one else to blame if I get it wrong.
One surprise move that I have made is to take on one of my colleagues as our family adviser to ensure I don’t let SMSF and other planning issues slide as I focus on my business. The regular reviews with “my adviser” are something I stress to my clients, so again I will walk the walk and this keeps me on track.
Liam Shorte is a director at Verante Financial Planning.
Wildcat, I agree that the insurance in the SMSF would have been a useful option and this should always be a factor and probably more important than a little cost difference. Some cover is better than no cover and any cover may be better than the ideal cover if not obtainable.
Liam cited a really important issue in keeping his insurance outside of the SMSF. Other than underwriting though if you have the misfortune to claim on that insurance the flexibility afforded to the remaining family of an SMSF owned policy cannot be underestimated, especially when there are minor tax and super dependents.
Well spoken Liam. Good to hear an advisor “walking the walk” and also showing you have success in your own strategy advice. Congratulations on all accounts
I like these articles. $30K or $200K and both give valid reasons. However for an Adviser completing a BEST INTEREST DUTY section on their SOA I cannot see a compliance manager being happy to allow the $30K strategy. So maybe purely reserved for non-advice DIYers. Is there a question of breaching the sole purpose test or fiduciary duty in wasting funds during those early years?
Setting up an SMSF with $30k is fine providing the individual has the desire to grow the balance as quickly as possible. Passion and ownership plays just as an important role as existing assets.You cannot just set a minimum balance because one size does not fit all people.
It is a good and valid article. One thing I think it highlights as did Meg’s is that there is an economies of scale barrier to setting up a SMSF.
Should there not be a serious look at what can be done to break down this barrier? Why shouldn’t typically younger or less well off people have the right also to manage their OWN money?
For instance if a fund has passed audit for say last 3 years and is invested in only shares and cash does it need to be audited every single year thereafter? Why not say every other year?
Is the ATO supervisory levy actually a fair fee? Why should people be forced to pay more for the “privilege” of investing their OWN money. If government says we are going to force you to quarantine 9.5% of your income into super, a clear affront to economic liberty then surely they should try to mitigate that as much as possible to make it cheap to oversee it yourself whilst in super?
You hit the nail on the head Meg. That discipline of having to explain an investment choice to someone takes some of the emotion out of the decision. That is one reason why I always suggest DIY clients explain their investment and strategy decisions to someone before proceeding as it makes them weigh the pros and cons while taking that sudden urgency out of the decision.
This is a great article and as Stuart says, a good demonstration of one size not fitting all. Two common themes I noticed though :
1. Both of us now get advice from other people (in Liam’s case, this is despite the fact that he has the expertise to do the investing himself. I suspect that like me he has found that the discipline of involving an outsider to make you focus on your own affairs sometimes is hugely beneficial)
2. We both hung on to insurance outside our SMSFs. What a simple but important decision!
Two examples as to why one size does not fit all. Both equally valid.
Well done Liam. The value of what you have done is provide to your clients a viewpoint similar to their own. As advisors to our clients we often forget how it looks form their side of the desk. And it is a good point you raise on insurance. Well done!