A lot of clients ask me about Self-Managed Super Funds (SMSFs) and whether taking on SMSF management personally is something they should consider.
They have usually heard that it’s a lot of work (because it is DIY super right?), and wonder if the work and worry are worth the benefits. My answer is this!
SMSFs are appropriate for some people but in my opinion, they do not suit the vast majority of superannuation members. I say this for three (3) reasons:
- Although there is no magic threshold ‘balance’, most couples don’t have enough superannuation money between them to start an SMSF and run it cost effectively.
- In my experience, it is rare to find that all members of an SMSF have equal enthusiasm and / or required competence to take on trustee responsibility. Typically, one person dominates decision-making and management activity. This can cause problems when the active trustee is no longer able to manage.
- Personal management of an SMSF is widely regarded as a chore, not a retirement lifestyle. Amongst an ageing member-trustee population, there are so many other things that most retirees would rather be doing.
So for those who haven’t yet made the SMSF decision, there are two positive alternatives that are worth considering before committing to your DIY fund. They are:
A. If you are not investing directly into real estate but still want investment control
In my opinion, if you are not intending to use your SMSF to invest directly into real estate property, then I suggest you seriously consider personal superannuation instead; this is where the trustee responsibility, compliance and administration are taken care of.
Personal superannuation is a generic term for retail superannuation products, which allow you to tailor investments, insurance and estate planning benefits to your individual needs.
In my opinion, a lot of people are unaware of the superannuation wrap, a type of personal super, which breaks away from the traditional ‘managed funds only’ model. It allows investors a lot more investment control by allowing term deposits, direct shares and managed funds to be grouped under a single administration platform.
B. If you are investing directly into real estate property but don’t want trustee responsibility
Most people haven’t heard of a Small APRA Fund (SAF). However, an SAF resembles an SMSF in every way except that the trustee is an ASIC-approved commercial trustee company. By doing this, you can enjoy all of the member benefits of an SMSF without having to take on the trustee responsibility personally or doing the compliance and administration work.
Of course, there is a third option, which is to use an administration service (which I would recommend only with the guidance and support of a trusted financial adviser). But I have a fundamental issue with this option.
Whilst it makes sense for an existing SMSF whose trustees are no longer able to manage, why set up a new SMSF like this? After all, the ‘SM’ in the SMSF acronym means Self-Managed, so why set up an SMSF only to hand over the management to someone else?
Retail personal super achieves that with so many more advantages!
General advice warning
The article above is general advice only designed to educate and heighten awareness of self-managed superannuation issues. It should not be regarded as personal advice, because it does not take into account your personal circumstances, financial situation or specific goals. For personal advice that is tailored to your needs, please contact me or consult your licensed financial adviser.