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Considering converting your super to a SMSF?

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Considering converting your super to a SMSF?

Here at Montgomery we are often asked by investors whether or not they should have a self managed super fund (SMSF). As we are not financial advisers, we cannot help people make this decision, which should largely be based on their personal situation and circumstances. However, we thought it might be helpful to outline a few of the pros and cons to consider.

 

What is an SMSF?

It is a trust structure that can be used to manage retirement savings. SMSFs are established for the purpose of providing retirement benefits (more recently retirement ‘income’); the benefits can also be passed to beneficiaries upon death.

Why have they come so popular – the pros

For many Australians SMSFs offer the following advantages:

  • Investment control
  • Effective tax management
  • Greater investment flexibility
  • Capacity to pool your super with up to three other individuals
  • Estate planning flexibility

Control and flexibility over your SMSF investment decisions affords you the ability and means to consider tax when managing your fund’s investments. Most superannuation funds will allow you to invest into shares, fixed interest and property via managed funds – but often with restrictions. SMSFs however, offer a large range of additional investment options, including direct property, physical gold and other commodities, derivatives, and subject to various requirements, collectables such as artwork.

Many industry experts say that beyond choice, the benefit of a SMSF is the ability to have more sophisticated investment strategies working for you.

SMSFs also offer the flexibility of gearing with your investments, whereas APRA regulated superannuation funds generally do not offer gearing.

 What should you also consider – the cons

SMSFs can be a suitable vehicle for the right people. But they are not without pitfalls and shortcomings.

Costs – as a guide, administration costs can vary widely but a good average is around $2,000 per annum with an audit fee of around $500 and an ATO supervisory levy for a newly established fund – let’s say $3,000 all up. With start up capital of $100,000, that’s a fee of 3 per cent per annum which is a figure well in excess of virtually any retail fund. At $200,000, its 1.5 per cent and at $300,000 it’s 1 per cent which is starting to look competitive with retail funds, but remember this is just the administration cost and does not reflect the cost of managing the money. In comparison, many personal super or “retail” offerings generally charge between 0.5 per cent to 1.0 per cent. Costs were sourced from this article on netwealth’s website.

The accountability of trustee responsibilities – the trustees are responsible for the administration and management of the fund. This includes duties such as keeping accurate records, causing financial accounts to be kept and drawn up each year, lodging returns in a timely manner, drawing up an investment strategy, managing the fund in line with that strategy and avoiding the ATO hotspots such as in-house assets, related party transactions, financial help to members, meeting the sole purpose test, meeting Super Guarantee requirements, avoiding early release of member funds, meeting minimum pension standards… and so the list goes on. Yes, professionals can be employed – at an additional cost – to help complete these duties and meet these requirements, BUT trustees cannot outsource the responsibility.

Running a fund in a non-compliant way, whatever the reason, can lead to fines, penalties, higher taxes, frozen fund assets and even criminal prosecution.

There is plenty to consider when thinking about this decision, you might like to read a few educational pieces:

Just remember, superannuation and investment decisions are complex. You should seek advice from a qualified investment professional before making any final decisions.

In wrapping up, a short shameless plug, you can invest your super in Montgomery funds with, or without a SMSF.

Scott Phillips is the Head of Distribution of Montgomery Investment Management. To invest with Montgomery domestically and globally, find out more.

INVEST WITH MONTGOMERY

Scott joined Montgomery Investment Management in 2013. Scott joined the firm from BlackRock Investment Management, where he was Managing Director, Head of Retail Australia for 12 years.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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7 Comments

    • Hi Michael – platforms such as netwealth usually want to wait for an external research house to rate the Fund before they add it to their menu. Assuming this is the case, then we will probably have to wait 18 – 24 months, but can I suggest you pass on your interest in the Fund to netwealth.

  1. Hi Scott,

    Yes, I’ve invested into the Montgomery Fund via netwealth’s superannuation platform. The Global or Montaka funds aren’t available on that platform yet.

  2. I get tired of people comparing an “average SMSF accounting and audit fees” with low cost retail or industry funds. If you want to compare apples with apples then those looking for low cost options can use online SMSF administrators charging $699 or even less and invest in direct shares, ETFs, LICs and index funds. Most choose to pay more for face to face service or active management and that is the same across industry, retail and SMSF.

    So please compare like for like. Anybody with less than $200k should not even be considering an SMSF. Member direct options with industry funds or super wrap accounts can offer wide choices for low-medium balances. When you get to $300-$500k an SMSF comes into its own, especially if you are looking at property as part of your portfolio.

  3. Scott, You just made my day.
    The Net Wealth super fund is the first fund that I have heard, that invests with Roger Montgomery. I have asked several people , with no results.

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