Have you ever considered establishing your own Self Managed Super Fund? With retirement planning at the forefront of everyone’s mind, this week I’ve prepared an article on the superannuation industries fastest growing sector – SMSF.
Research suggests that there are many reasons why people look to establish a SMSF. While you may think that lower fees are the main attraction, for most people, it comes down to taking control and responsibility of their own financial affairs.
In fact, it’s the combination of people wanting to take control of their own financial affairs, along with having the ability to invest in other investment products which are not largely available through traditional superannuation as the key determinants.
But before choosing to establish an SMSF, it’s important that you understand what an SMSF is and what it achieves.
An SMSF is an entity that holds and invests money in trust on behalf of its members. Being a trust, it is the responsibility of the Trustees to make sure that the rules and laws of the SMSF body are upheld.
There are two core components in every single SMSF. The investment products in which the fund chooses to invest on behalf of the Trustees and the administration of the fund.
Administration of the Fund is required annually and costs vary depending on the activity and complexity of the fund. From experience the annual charge can range from as little as $600 to costs that run into multiple $1000s. It’s important to conduct your own research and determine the most suitable service and fee structure for your fund. I have heard stories of accountants charging over $10,000 for an audit that you can obtain online for far less and for as little as $600. A word of warning, the industry has a habit of charging fees based on how much money you have under management rather than the service with which you are provided!
The main advantages of setting up an SMSF include:
- Having personal control over your superannuation funds.
- Having a wider scope of investment products open to SMSF investors.
- Flexibility and choice as to what investment products and instruments the Fund invests in.
- The ability to remove upfront and ongoing trail based fees enforced by much of the financial planning and super fund industry.
- The ability to remove investment professionals from decision making.
- For people who are interested in investing directly, the bulk of professional fees are removed from the equation.
One of the administration duties placed upon Trustees is that of a basic written investment plan. This must be developed, lodged with the ATO via your accountant and maintained, so in the event of an audit, the auditor can clearly establish if the investment products and instruments used in the Fund meet the investment mandate.
This is one of the reasons, amongst others, that many people seek the services that SWS provides. Our customer base is made up of an overwhelming majority of SMSF Trustees who choose to use our investment products, SPA3 and Intelledgence.
For example, as part of executing the SPA3 strategy, we take new customers through the process of establishing a written plan that outlines 5 core areas that form part of the investment mandate. These areas include:
- The Mission Statement
- Goals and Objectives
- The Strategy
- Risk and Money Management
- Process Management
You can read how we cover each of these areas in depth, with the help of SPA3, in a previous article called “Blue print for trading success”.
Making the decision to manage your own superannuation should not be taken lightly. There are duties that come with responsibility and this does take time and effort. But the rewards are worth it, not just in monetary terms.
