At some time, many of us will consider whether or not to have a self-managed superannuation fund (SMSF). Whilst SMSF’s can be a useful structure, they are not for everyone, and there are some commonly held myths about them, which in true Adam and Jamie fashion I am about to bust. A detailed free guide to making an assessment of the appropriateness of a self-managed superannuation fund can be found here
I believe there are four C-Myths around Self Managed Superannuation Funds
The most commonly held belief is that an SMSF gives you control. The question is control over what? Is it control over
Do seek advice in respect of investment? If so I would argue you cede control to the adviser. Does anyone have control over the performance of investment markets? Do you have the ability and time to be able to deal with the management of a superannuation fund?
With control also comes RESPONSIBILITY. Should the fund breach the law or regulations, then it is you, the trustee, not the accountant, not the financial adviser who will be held to account by the regulator.
Many potential SMSF trustees like the thought of having control over the way in which their superannuation funds can be disbursed. Bu do they know what they can and can’t write a cheque for? How many cheques are really written, and to whom?
A reason for having an SMSF often cited is choice over investments. Absent direct real property (that is property owned by the fund directly rather than through some sort of property trust), there are not too many investments which can be held via an SMSF which cannot be held via a retail superannuation platform. Most modern platforms allow for direct shares, term deposits, cash investments and managed funds to be held within the platform, with the choice of particular investments being made by the members of the fund. How many choices do you need?
Many potential SMSF trustees think that operating an SMSF reduces their costs, and therefore increase the rate at which their superannuation savings accumulate.
Many of the costs associated with operating an SMSF compared with a retail superannuation product are same, share brokerage and investment advice for example. The direct costs of the SMSF structure in accounting fees and audits are fixed regardless of fund balance, and as a consequence diminish in percentage terms as the fund balance rises.
Most retail funds decrease their administration charges as balances rise, and some cap their fee at a certain level beyond which there is no additional cost.
In my experience there is little or no cost saving for most people operating a SMSF.
The costs, risks and responsibilities, and the time involved in running an SMSF are significant. Many of the reasons given for wanting an SMSF just don’t exist in a practical sense.
A decision to close down a SMSF should not be taken lightly however, and the process needs to be managed carefully. There are a multitude of retail superannuation platforms available, and which one is best for you will need careful consideration. Professional advice is always recommended.
We have put together a more detailed free guide to assessing whether you need a self-managed superannuation fund, whether you are looking to set up a new one, or are reviewing the ongoing suitability of a new SMSF. You can access our guide here
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