No matter where one turns at the moment we are being bombarded with messages about setting up self managed superannuation funds (SMSFs). Radio, TV, print and particularly online, organisations are trying to drive you to a website, click a few buttons and establish your own super fund. But are they all reputable and from what should you steer clear?
First things first however – most of us don’t need a SMSF! Unless you have;
- accumulated significant wealth and/or
- have excellent financial literacy
- want to invest predominantly in direct property
- want to invest in exotic areas such as art,
then a SMSF is probably not for you and you can get a better deal through mainstream super funds.
Further, as the SMSF honey pot grows larger (it is now approximately $500 billion) the more we will see unscrupulous operators trying to relieve you of a chunk of your super. Having said all that, SMSFs definitely have a place and will work well for those who have their wits about them.
So, should you run out and sign up online? Probably not before speaking to a few people about how SMSFs operate and the work involved in maintaining them each year. Make sure you talk to more than one financial group and don’t be sucked in by the ‘free seminar’ and ‘sign up now and save $X thousands’.
If you are intent on setting up a SMSF then you should be prepared to pay a few dollars. In this regard a standard set-up fee is normally between $500 and $1,000. This should include the Trust Deed and all other documentation such as applying for a Tax File Number, minutes and the like. If it’s all free and seems too good to be true, then it probably is. Those offering free set-up will try and recoup their costs by locking you into a higher than normal annual fee and getting you to use their ‘preferred’ cash accounts and/or investment opportunities, for which they will get a kickback.
Ongoing, make sure you negotiate a fixed fee for your annual administration (accounts) and a fixed fee for the annual audit. If anyone tries to charge you a percentage of your SMSF’s assets (typically one per cent), be very wary. It’s the same amount of work whether your SMSF has $200,000 or $1 million, so there’s no real argument to pay them five times as much. Typically somewhere between $1500 and $2000 is reasonable.
As for those super cheap online operators, by all means consider them. Many are currently offering prices cheaper than what it is costing them, simply to build up market share. If you are tempted to use one of them, do your homework. Whatever you do, make sure everything stays in your name (the Trustee) and don’t sign multi-year deals which you can’t get out of.
Above all, make sure you are confident in running your own super fund. Unless you fall into one of the categories mentioned above, mainstream super funds will generally be able to give you everything you want in a safer and often cheaper environment.
Article written by Jeff Bresnahan, Managing Director, SuperRatings
SuperRatings Pty Limited holds Australian Financial Services Licence No. 311880. Any information provided is of a general nature and is not guaranteed to be accurate or complete. Information has been prepared without taking into account your individual financial objectives, situation or needs. You should, before acting on the information, consider its appropriateness having regard to your own financial objectives, situation and needs and consider obtaining personal financial advice from a financial adviser. Before you make a decision regarding any of the products mentioned, you should obtain and consider a copy of the relevant Product Disclosure Statement from the product issuer.
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