The use of self-managed super funds (SMSF) has grown exponentially over the past 20 years. At around $676 billion in assets SMSFs make up about one-quarter of the Australian superannuation industry. Flexibility and investment control is still the main reason investors set up a fund.
Over my 20 -career I have heard from people wanting to set up a SMSF more times than I can count:
"I can manage my money better than anyone else" or "My accountant/friend/family member said I need a SMSF".
You might like the idea of managing your own funds and in the right circumstances a SMSF may perhaps be perfect for you, but the fact is a SMSF can also be a terrible idea for a whole bunch of people.
SMSFs can give you the control to choose your own investments so long as you follow the rules. They are complex and require a lot more work than your average retail or industry fund. You need to have the time, knowledge and skills manage your fund.
They can also be more cost effective than other types of super, but this is heavily dependent on how much you have to invest and how much professional advice and administrative assistance you need to pay for.
SMSFs cost money to set up and run and sometimes the costs incurred can be more than you would incur for a retail or industry fund. Every year you will need to pay for completion of financials and tax returns, an independent audit, cover the Australian Taxation Office's supervisory levy and you might also need financial or legal advice.
You do get to make investment decisions for the SMSF but you must ensure you avoid any legally restricted investment strategies and you must develop a written investment strategy and regularly review it. Being financially literate and having good investing experience will give you a much better chance of success.
With a SMSF the buck stops with you and you need to be across the legal requirements and administrative responsibilities. The ATO regulates SMSFs to ensure trustees comply with the Superannuation Industry (Superannuation) Act 1993 (SIS Act) and other regulations and stiff penalties apply if you fail to do so.
So, if that all sounds too hard then perhaps you can save time and stress by choosing to hand over responsibility to a retail or industry super fund for managing your money and dealing with the administrative and compliance requirements on your behalf.
Either way, it's important to always get all the facts before you make a decision and the best way to do that is get good advice from a qualified professional.
- IMPORTANT: This article offers general advice only. You should seek advice tailored to your particular circumstances before taking action.