Are SMSFs all they're cracked up to be?
Self-managed superannuation funds (SMSF) seem to be the flavour of the month. But do they live up to the hype? And is it the right vehicle into retirement for your client?
We asked Jason Powell, CEO of Wealth Market, the pros and cons of opening a SMSF.
Why would you consider a SMSF?
- There’s enough money to start one. The number that is often floated around to open a SMSF is $200,000. But having $200k doesn’t mean it’s enough to make the right investment! Far more important is to know what to do with the money. It’s also important to take into account the fees associated with a SMSF, especially if hiring a financial adviser to help make the investment decisions.
- There are particular investment opportunities. SMSF trustees are able to choose their own investments as long as it’s allowable. If they want to invest in something that Australian Prudential Regulated Authority (APRA) funds don’t have options for, then a SMSF could be the right fit. In particular, if they want to buy direct property (residential or commercial) then they’ll need a SMSF. This is also the case when borrowing to invest.
- You have time. The trustee, whether or not outsourcing some responsibilities for accounting and investments, is the one in charge. They’ll need to manage the investments, manage the contract assistance and the oversight. If they have time to invest in the then a SMSF could be a great option
- You want more flexibility. Big APRA funds have to write trust deeds that will cater to the masses, and they don’t grant some of the estate planning powers that are available in standard superannuation funds. There are many funds that don’t allow binding nominations or reversionary pension options. SMSF’s are able to make complex end of life financial arrangements that APRA funds will never have the flexibility to do. SMSF’s are also able to make anti-detriment payments and have more flexibility with death payments.
And why should a client hold off on opening a SMSF?
- They’re doing it because it’s the trendy thing to do. Yes, you can hire someone to make the decisions for you, but that costs money. SMSF’s are an expensive option if the client isn’t interested in doing the research, getting a second opinion and investing their time.
- They want to pick their stocks. There are better options for managing stocks than SMSFs. With today’s platforms and Wraps, you can buy almost any listed stock or managed fund and do it at a fraction of the cost (and time) than a SMSF.
- To pay fewer fees. When dealing with a SMSF the trustee is liable for many fees for accounting, audit, fund managers, stockbrokers, platform , investment advice and ATO supervisory levy fees. These all add up quickly!