Self Managed Superannuation Funds

Getting the best out of your SMSF.

This is the new HOT button for many people but are they getting value? – many are not.
Quite a few are in SMSF’s but investing predominantly in term deposits or cash during these volitile times, but if you are then when will you change tack and invest in other options?

There should be something unique about your SMSF – otherwise you could simply use a good quality platform, with a broad set of options. Eg. Are there good grounds to invest in property in your particular case, do the numbers justify this for you – or can you manage you own direct share portfolio at a low cost and are you so inclined to be heavily involved.

  • Property is an attractive option to many people – since you may be able to do some improvements yourself – keeping costs down- or you have found a property with a unique location that can appreciate in value.
  • Property works particularly well for those members who may run a business from the premises – the rent they pay is into their own SMSF, not to someone else. The cash flow potential in these situation may have distinct advantages, provided that your business is sound.
  • Direct share holdings utilising high dividend yielding stocks with franking credits is another attractive option. The SMSF gets tax refunds back into the fund from excess franking credits.

The criteria to have an SMSF are the following:

  • A minimum of 1 and a maximum of 4 members – who get along or trust the main driving member as the key trustee. All members must be trustees.
  • You should have at least collectively $200,000 to justify the various additional expenses such as accounting and audit fees, $300,000 is a better start point.
  • You should be prepared to follow through with some training to understand the guidelines required by the tax office as trustees for your own fund.
  •  Insurance issues can be particularly effective inside a SMSF – but you have to be prepared to take out significant insurance and perhaps need to claim on it for the advantages to be apparent.

The Disadvantages can be significant as well:

  • The Tax department is taking a less tolerant attitude towards mismanaged SMSFs. All trustees are equally liable in the case of mismanagement – you can’t pass the buck.
  • Member Trustees may not agree on investment strategies, particularly at difficult times, such as in the GFC or one of the ongoing Eurozone crises.
  • Divorce often causes problems inside a SMSF splitting assets and the process of how, what and when to do this.  An acrimonious divorce may lead to a split of assets at an inappropriate time.
  • In order to build assets to a suitable critical mass level for low costs, adult children may be introduced to the fund – but they will have different time frames, objectives and tolerance for volatility. This may cause friction at a later stage.

Financial Advisors and SMSF’s.

The advantage of using a financial advisor is that our role is to do 3 key things:

  • Ensure that the trustees are aware of their duties and obligations to operate within the law and avoid the harsh penalties that can be inflicted on SMSF’s that are not compliant.
  • Ensure that the investment strategy has suitable diversification and flexibility to react to economic conditions.
  • Bring to the attention of trustees invesment opportunities for the fund.

Look at the following link to get an appropriate idea of obligations you need to be aware of as a trustee.

www.ato.gov.au/superfunds/content.aspx?menuid=0&doc=/content/46427.htm&page=1&H1