“SMSFs and the fit factor”
written by Robin Bowerman, Principal, Corporate Affairs & Market Development at Vanguard of Australia

“Penalties for making administration errors can be onerous so for people considering setting up an SMSF it is worth investing the time and money understanding what is involved in managing an SMSF and the costs involved.”



It is reported in the Institute of Chartered Accountants’ National SMSF Conference on the 20th September that there are over 478,000 SMSFs holding almost $438 billion in assets and the statistic released by the ATO indicates that the numbers are growing.

The ATO forecast that there are likely to be one million Australians managing their own SMSF. The increase in SMSF shows people are getting more engaged with their superannuation and taking control of their retirement savings.

This is obviously a very sort after subject to discuss, so I thought I would share my experience on this subject with you. Bowerman article raises concern about the trustees’ ability to keep up with managing and maintaining the fund in compliance with the regulations that is forever changing. The penalty for making administration errors can be very onerous.

Personally, I have discussed with some clients to see if it is viable to set up their own fund. Some of the concerns encountered are:

Health issues;
Health will be one of the main problems that will affect the trustees’ ability to manage their own fund. Without paperwork being setup properly, some members may be languishing in the hospital with cash flow problems while their money is stuck in the fund.

Time and capability of the trustees;
The spouses are mostly the one who expressed their concern about managing the fund should the partner pass away. Most of them will have very little experience or idea about superannuation let alone having to manage a fund. Appointing someone to take over the managing of the fund would be one of the main concerns of running a SMSF.

Research on investments;
Millions of dollars have been lost to scams. The scammers today are so sophisticated that they have conned even some of the very big superannuation funds. If not for the bail out by the government their members would have no money for their retirement.

Note:
A warning to all of you, some conmen are out there selling share research to mum and dad superannuation trustees.

Following the discussion some of the mums and dads investors have walked away from the idea of setting up their own fund and opted for APRA or master fund.

Most Mums and Dads SMSFs can only access investment in Australian listed securities and term deposits (obviously some would purchase international shares). If their funds are large enough they can also invest in direct residential properties. Otherwise they could consider borrowing for the property investment if the returns justify the investment.

Beside all these investment options, the SMSFs trustees should consider putting international equities, properties and fixed interest investments in their portfolio. It is a well known fact that Australia represents only 2 percent of the world markets and with more and more baby boomers retiring, the Australian markets starts to look a bit over crowded to squeeze any higher return.

The SMSF trustees can access international investments through managed funds using a master trust, or a wrap account. If using this option the SMSF trustees should consider if they are doubling up on their investment structure.

The ultimate reason to start a SMSF is costs and control. But really there are other alternatives that can give you the same thing without the headache of a SMSF.

You are welcome to contact me if you want to find out the cost of the alternatives.

Charles Choong
Authorised Representative
Professional Investment Services


Director
First Pacific Financial Services Pty Ltd


P.S. Please email me if you want to read the article by Robin Bowerman.