Money

To SMSF or not to SMSF? That is the question

Jan 28, 2015

I was recently asked to write something about Self Managed Superannuation and the invitation was very open ended. In the absence of a direct question I think the best way to tackle this subject is to cover it broadly.

Why would you?

Why would you want to be the trustee of your own fund and is it truly self managed? Is it because you can manage it better than everyone else? Is your situation unique that you need something that the normal Fund won’t be able to provide.

It’s a bit like owning a car. It’s true that you own the car however most people have a mechanic that services it. They don’t make their own tyres or fuel and the driver is subject to the road rules. You even have to be assessed as “road worthy” and you have to pay to be registered. You may very well own the car but the rest is subject to the normal restraints of our society.

Welcome to Self Managed Superannuation where about the only thing you don’t seem to do is self manage! In fact you could almost argue that it should be called self trustee and therefore self risk!

Let me explain.

In the world of superannuation most retail super funds (those you can buy from a financial institution) allow you to buy investments in virtually every asset class from listed shares on the ASX to managed funds covering property, bonds, cash and international shares etc. To be honest, there isn’t much that they can’t buy and the trustee takes responsibility for the available investment that you can access. You may also access insurance products and use a financial adviser or even just have a direct relationship with the fund. You are usually provided with online access and always receive reporting as it’s mandated by law.

The Self Managed Super Fund (SMSF) option, on the other hand, can allow for more flexibility and, on the same token, more risk. You, as the trustee, take responsibility not only for your investment choices and the outcome of those choices, you are also responsible to meet all of the compliance and taxation hurdles imposed by the Australian Securities and Investment Commission (ASIC) and the Australian Taxation Office (ATO). The buck stops with you. In exchange for this additional burden you have the option to consider such alternate investments as direct property, unlisted shares and many other investments subject to a plethora of rules and regulations.

Most SMSF trustees seek the assistance of both an accountant and a financial adviser in the process, in particular because of the penalties imposed for failing to play within the rules. They will need to submit annual tax returns, provide financial reporting and be subject to an annual audit.

I understand that everytime you read an article that I write you are confronted by the inevitable truth that not all things suit all people. SMSF is the classic example of this. The ASIC regulations class the fund itself as a product and for good reason. You should always first consider both your available resources and you own personal and family goals before you make a product decision. SMSF is no exception. You need to have a strategy that requires a SMSF before you actually get one. No point in first buying a coupe and then discovering you need a 4×4.

There is absolutely no right or wrong answer, just right or wrong for you and your family.

Strategy is everything.