What’s involved in running an SMSF

Photo of Joshua Williams, SuperGuardian By Joshua Williams, SuperGuardian

min read

Key questions you need to ask before setting up a Self-Managed Superannuation Fund.

How much super do you have and what investments are in your fund? What is its year-to-date performance and how does this compare to market indices? Contributions and withdrawals – where are you at?

This information can, and should, be at everyone’s fingertips, but most Australians have little idea of the value of their super last June, let alone today.

And only a few who have a genuine interest in their personal wealth have any idea how their super is invested or what fees they are paying for the stewardship of their greatest savings vehicle and probably largest asset beside the family home.

With a self-managed superannuation fund (SMSF) you can either choose to make the investment decisions yourself or delegate some or all of the management to others. But in all cases you can know your super in detail and avoid compromising on ownership or transparency.

It is a tax-advantaged tool that will help you to live comfortably in retirement, and all Australians should have greater engagement.

Where to start in taking control

An SMSF administrator is a specialised accounting and administration firm that is the hub that connects a variety of service providers, to streamline and deliver a simple and effective solution for your super.

SMSF admin firms enable you to own the investments and some can even save you the on-going hassle of paperwork. In their capacity as a specialised accountant they help with all the tax lodgements for your fund and will facilitate the other necessary elements on your behalf, like audit, actuarial, deed services and documentation of events, such as starting a pension.

An SMFS administrator can also assist in appointing a death beneficiary and power of attorney.

Will you lose economies of scale that big funds achieve?

As it stands, an SMSF can only combine the assets of up to four people, soon to be extended to six under a federal budget proposal. This does not remotely compare with the largest retail super fund in Australia (AMP Superannuation) with almost three million members at February 2018 (source: Canstar).

A large public or industry fund is generally cheaper for those who are just starting out, without an ambitious investment or contribution strategy. Costs to manage an SMSF are not always cheaper, but given SMSF administration and accounting fees are generally fixed regardless of the value of the portfolio, there is a threshold at which they do become more cost effective.

When it comes to investing, doing your research is important. It is true that the big public funds can spend more on analysing investment choices, but you can also get recommendations from professionals, and because you are in control you can act almost instantly on investment choices when necessary.

Insurance is generally cheaper in an industry or retail fund, given their buying power. Not surprisingly though, at 31 March 2018 assets in SMSFs totalled $721 billion compared to retail funds of $613 billion and industry funds of $590 billion (source: Association of Superannuation Funds of Australia). Perhaps it’s time to arrange an SMSF insurance group buy.

Innovative SMSF administrators will also employ automation and volume-based efficiencies to get you a depth of information you probably didn’t know was possible.

How much do you have to do yourself?

You could choose to do it all yourself but that’s probably not the best idea because of the specialised knowledge required. Working with an administrator will save you time, leaving you to focus on other important aspects, like generating the best return.

Some SMSF administration providers will also act as the registered mailing address for investment correspondence, including notifying share registries of tax file numbers, banking details and communication preferences, at no additional cost. Most will also offer a fully online solution, with electronic signing of documents (except trust deeds and associated legal docs), saving you a lot of time and hassle.

Even most accounting firms do not have enough scale in SMSF work to be able to offer these advantages or cost efficiencies.

However, it is important to know that ultimately you will be responsible as a trustee of your super and this responsibility is not something you can easily delegate.

Do you really need assistance or can you take care of compliance yourself?

If you have a thing for barely intelligible literature you can buy yourself a hard copy of the 2,500 or so pages of superannuation legislation. Then move on to tax legislation and keep abreast of new rulings, practical compliance guidelines, interpretative decisions and law companion guides coming out in droves every year.

You need someone who understands and can keep up with the lodgement requirements for income tax, activity statements and transfer balance account reports. The reporting frequency for some funds has already increased to quarterly and this is likely to continue to move towards a real-time reporting framework.

Know your administrator and your super

Not all SMSF administrators are made equal. Here is a useful checklist of things to look for.

Where traditionally everyone has been happy enough to passively invest their super in a fund where the managers help themselves to a percentage, there is no question that anyone who has a genuine interest in their future financial well-being should play a more active, participatory role.

Ultimately the aim of greater engagement is to give you more independence in retirement and reduce your reliance on the taxpayer-funded age pension.

About the author

Joshua Williams is Chief Operating Officer of SuperGuardian, an innovative, independent and market leading Chartered Accounting firm, specialising in administration, accounting, online reporting and technical services for Self-Managed Superannuation Funds (SMSFs).

 

Any financial product advice is provided by SuperGuardian Pty Ltd. AFSL No. 485643. The information is general in nature and is not personal financial product advice. It has been prepared without taking into account your objectives, financial situation or needs and because of this, before acting on it, consider the appropriateness of it having regard to your objectives, financial situation and needs. Carefully read and consider any product disclosure statement that is relevant to any financial product that has been discussed before making any decision about whether to acquire the product.

From ASX

ASX has a range of useful SMSF calculators to help investors plan for retirement.

The views, opinions or recommendations of the author in this article are solely those of the author and do not in any way reflect the views, opinions, recommendations, of ASX Limited ABN 98 008 624 691 and its related bodies corporate ("ASX"). ASX makes no representation or warranty with respect to the accuracy, completeness or currency of the content. The content is for educational purposes only and does not constitute financial advice. Independent advice should be obtained from an Australian financial services licensee before making investment decisions. To the extent permitted by law, ASX excludes all liability for any loss or damage arising in any way including by way of negligence.

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