So You Want a Self-Managed Super Fund
In my experience, the odds are that you don’t need a Self-Managed Super Fund (SMSF). You are more likely to better of in a retail fund or an industry fund. So before jumping blind into a SMSF, look around at the alternatives. There are retail superannuation funds around that can provide absolutely everything you could want in flexibility and control, except for direct property. And you don’t have to be concerned with the onerous trustee responsibility and all the admin hassle, such as annual accounts, tax return and an independent audit.
For this reason, I like to give those interested in SMSF the real story; that is both sides of the SMSF story; the pros and cons. It is important to have a balanced view before committing because this is such a big commitment, which most people don’t realise at the outset.
Don’t get me wrong, I will guide you in the set up of your own SMSF if that is what you really want, but if you want set it up the cheapest way possible I can tell you now that you are opening yourself up to possible future liability which may well come back to bite you. So my advice will be to set it up properly and build a sound structural base for the future.
If you want a SMSF to purchase a residential or commercial property and need to borrow money to do it, be aware that there is risk in doing that and you will need a more complex structure to comply with superannuation law in regard to borrowing money. Please seek professional advice.
You are also welcome to come to me with your SMSF for an opinion or a second opinion, and what I will do for you is undertake a comprehensive review of your SMSF for you.
So to give you a snap shot of what’s involved in running your own SMSF, please read on (if you are ready).
My SMSF Review Process
The first part of our SMSF review is to assess its current position. It is important for you and I to both know exactly what we are dealing with.
So we will examine the way it has been set up, why it was set up, and on whose advice it was set up. In other words, was it your desire to set up your SMSF or was it the recommendation of an accountant or financial planner? The fund structure and the trust deed are vitally important because there are so many future events that rely on having a solid foundation.
The next part of the review process and often the most urgent is to review the investment portfolio as well as determine the cash available to pay pensions and / or to meet the fund’s expenses.
We often find an investment strategy that has never been reviewed, and investments that are inconsistent with the members’ attitude to risk. Where inexperienced accountants and financial planners have been involved, the investment risk is often way too high. Where it has been totally DIY, and investments made without assistance, the investment risk is often too low because such a lot is held in cash.
We often find investments like installment warrants and illiquid managed funds in the portfolio. Installment warrants are share derivatives and usually have a maturity date. So they can be difficult to sell down quickly without incurring a loss. The illiquid managed funds can be locked in for several years, often paying an adviser commission that the client is usually unaware of.
So these types of investments effectively bind the client to the adviser and guarantees adviser income for several years.
We outsource to an experienced chartered accountant to assess the financial and tax position of your fund. We ask an independent auditor to undertake both a financial audit and a compliance audit. Any borrowing, leases & related party arrangements come under scrutiny in this part of the review.
Once we understand the current position of your fund, we will look at the options going forward. The critical questions to be answered include:
• Do you have an ongoing need for an SMSF
• What do you need that can’t be satisfied by a superannuation alternative?
• Are you interested in continuing as trustees?
• If so, do you understand your responsibilities and do you realistically have the time and the capacity?
In my view, which is based on my experience, the SMSF is for sophisticated investors who have the interest, willingness, time and capacity to perform the trustee role. Everyone else should seriously consider superannuation alternatives before rushing into the SMSF decision that I have seen many people ultimately regret.
If you would like a second opinion or a review in Brisbane, feel free to call me. I am happy to talk through the issues at no cost to you and will only start charging when I actually start doing something for you and with your agreement.