In Gary Weigh’s experience as Principal Advisor at Gary Weigh & Associates, he sees a lot of people in SMSFs who clearly shouldn’t be there. Often, they are there because someone else has recommended or promoted the idea.
Gary believes that, “If you are not intending to invest in Real Estate property or Collectibles (e.g. collections of art, wine, coins, stamps, etc.) then there is not an immediate obvious need for an SMSF. You would have to seriously question your own motives for wanting an SMSF, or question the motives of the person recommending an SMSF to you”.
Gary knows from experience that the main reason why people want an SMSF is because they like the idea of control. He says that whilst in theory the SMSF structure does offer a lot of control in the areas of investment, estate planning and tax management, in practice, it generally doesn’t play out that way. This is mainly because most people aren’t experts in any of these areas so they simply don’t use their SMSF to its full potential.
When clients come to Gary’s financial advice practice with a problematic SMSF, the first problem he sees is that most funds don’t have a corporate trustee. This can disadvantage member-trustees later on in a variety of ways, including exposure to personal liability.
The investment problems he sees typically include a lack of diversification and investments that are too risky for the particular member’s risk appetite. In some cases, the investment portfolio is no more than listed shares, term deposits and managed funds, which don’t require an SMSF structure.
Gary adds, “There is always a temptation for SMSF practitioners to recommend an SMSF because that is their preferred business model; and the ongoing admin and compliance required becomes a very profitable source of ongoing work”.
Because there are multiple disciplines involved, including record-keeping, minuted decision making, accounting and audits, as well as ongoing advice and review, trustees become very tied to and dependant on their ‘team’. This make the client feel locked in and over time this can lead to dissatisfaction because the focus shifts to the amount of ongoing practice revenue rather than the client’s retirement goals.
So if your investment intentions don’t require an SMSF or if you are not keen to take on a lifetime of personal or outsourced compliance and admin, then think twice before committing to an SMSF. It will pay you to get a second opinion.
There are other forms of superannuation out there with varying levels of control that could achieve your retirement goals without all of the work and hassle.
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