There is an understandable lure towards implementing a Self Managed Super Fund through which you can invest and control your superannuation assets rather than leaving it up to someone else. An article I read today suggested that there were over 372,000 SMSFs in Australia as of early 2008 with 47,500 new funds registered in 2007.
So is it worth getting on the band wagon?
My response to that question revolves around three key determinants:
· Benefits, &
A key element in the decision making around any investment alternative is the cost of implementing and maintaining the strategy. The article I was reading outlined the Australian Tax Office's annual return data for Self Managed Super Funds. It suggested that the ratio of operating expenses to total assets for SMSFs were:
· 10.51% for funds with assets of up to $50,000
· between 2.63% & 3.55% for funds with balances between $50,000 & $200,000
· 2.26% for funds with assets between $200,000 & $500,000
The 2008 Rainmaker Fee Review provides some perspective for these fees. This review suggested that workplace super funds now average 1.41%.
What are the fees for a superannuation portfolio we would recommend?
Based on a 40/60 portfolio - 40% invested in defensive assets such as cash and fixed interest investments and 60% invested in growth assets such as Australian shares, international shares and property our fees come in at:
· $50,000 portfolio - 1.66%
· $200,000 portfolio - 1.34%
· $500,000 portfolio - 1.18%
We feel that our fees are very competitive both against workplace averages but especially when considered against the SMSF averages mentioned above.
Fees are important but not the only criteria to consider. Benefits from using a self managed super fund can range from the control it allows you to take of your own investments to what investments you can actually include within the fund. For instance, under certain conditions you can include art work and even business property with the superannuation fund. There are some clear rules about these more unusual asset classes including the sole purpose and arm's length test but a self managed super fund definitely provides other asset class opportunities.
If you are not interested, or do not see the value of holding these assets within your superannuation fund then this benefit disappears.
In terms of the control benefit there are other ways of having more control of your super without going down the SMSF path.
We employ an administration service for the majority of our superannuation and pension clients. Using this service, clients through their financial advisor, are able to purchase a large range of assets within their fund including shares listed on the ASX. They therefore take significant control of their portfolio. No art work or business real property but not everyone has that compulsion.
We are open in saying that we would love the costs of using such services to be cheaper but with the rebate we receive from the provider we use which we pass on in full to our clients, we can keep overall costs below average SMSF and the workplace averages.
Unfortunately, with more freedom and control comes greater responsibility. A lot more scrutiny is being placed on self managed super funds. Anyone who is contemplating going down this path must be prepared to take on the trustee responsibilities that come with this.
Our preference is to use an administration service which will take on the trustee responsibilities for you including completion of tax and auditing requirements. As long as the cost of this service is kept to a minimum we believe the benefits and peace of mind it provides clients is well worth it.
Self Managed Super Funds definitely have their place providing benefits to users and if well managed can even be quite cost effective.
Our preference though, is to not recommend the use of SMSFs as an administration service can provide just us much control at lower costs without the trustee responsibilities.
If you wanted to discuss this issue in more detail please get in contact for a free no obligation meeting / discussion.