What’s all the fuss with SMSF’s?

The report commissioned by the SMSF ​Association showed that with more than 1,044,000 members and 550,000 funds, Self-Managed Superannuation Funds (SMSF) are the fastest growing super sector in Australia.

With SMSF’s growing not only in number but also in value, the report confirms there is a shift to move away from those opting to try to "do-it-yourself" to trustees seeking out advisers who will help manage their fund. Three in five are turning to advisers for support in managing their SMSF.

While turning to a professional for advice may provide SMSF trustees with the comfort that their retirement funds are under expert care, research also suggested that trustees need to understand their obligations. Three in 10 trustees said their level of understanding could be better.

I would like to discuss some arguments here and help you understand more about SMSFs.

The decision on setting up a SMSF is not based on the tax. An SMSF has no tax advantage over an industry or retail super fund. The tax effective strategies, such as contribution strategy, can be applied in both SMSF and industry and retail super fund.

An SMSF can hold an investment property, whereas an industry or retail super fund cannot. If you sell the SMSF investment property in your retirement after superannuation preservation age, you can avoid the capital gain tax. This is the most attractive benefit for setting up an SMSF, therefore more and more investors commence their SMSF for property investment. However investors quite often do not understand what type of property and how much the property should be for their SMSF. Common mistake are investors cannot get finance for the property due to low service ability or high property price. Generally cash flow analysis and finance analysis should be conducted before purchasing a property.

Another common issue I often see is that investors only invest in managed funds or simply leave the money in the cash account with their SMSF. If you have no intention to invest in property or direct shares due to your experience or super balance, only investing in managed funds or cash in the SMSF is meaningless. A good retail superannuation wrap platform allows you to invest in managed funds and cash investment options with lower ongoing costs.

Cost effectiveness is a key factor when my clients consider a SMSF. Generally the costs are fixed fees, such as accounting fees, whereas the industry or retail super fund has percentage based fees. If you have a higher balance in your super fund, setting up an SMSF may be more cost effective due to economy of scale.

With more than one million Australians having turned to taking control of their own super, the growth of the SMSF sector is likely to continue to grow, with advisers playing a vital role to ensure they are working with trustees on strategic, value-added advice and investment strategies that balance their risk and return objectives while minimising longevity risk and allowing them to live the retirement lifestyle they have saved for.


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Investors Direct Financial Group

Investors Direct Financial Group (IDFG) was established in 2001.
Our mission is to help our clients achieve and maintain their financial freedom.

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