What are Self Managed Super Funds?
Unlike traditional super funds, SMSF’s allows you to take greater control of your investments, potentially at a lower cost.
The primary difference between a traditional retail fund/industry fund compared to a SNSF, is that you have greater investment options whilst at the same time you can have more simplistic transparent investment options, but greater direct responsibility.
One of the major reasons why people go into SMSF is that they would like to invest in Direct Property.
Whilst Direct Properly isn’t the” be all and end all” of assets that should be invested in, we believe that it should be part of your overall portfolio mix, along with an exposure to equities which include Exchange Traded Funds (ETF’s), Managed Funds, Bonds, Cash and Term Deposits.
Compared to traditional super funds, which have certainly improved their investment options, the major differences appear to be the wider exposure to the full stock exchange, direct property, and other asset classes that are acceptable to the ATO. However, as stated earlier, the majority of SMSF’s are predominately driven by Direct Property, then Cash, Term Deposits and then a small exposure to Direct Shares or Managed Funds.
Whilst traditional retail super funds provide direct share access now, the costs of running traditional funds with their platform costs and fund manager costs, with or without Advisor fees, can be dearer than a SMSF. However, it is important to note that with a SMSF whilst there may not be a platform fee or fund manager fees, you do have annual tax return and audit fees in addition to an initial set-up fee.
Therefore, in the end it boils down to more specific diversity of investments and more direct control by the individual with the assistance of Advisors such as FOFM and the Accountant to prepare the tax return and arrange the audit report.
Why do I need this?
SMSF’s may not be ideal for you, simply because the Trustees of a SMSF are legally responsible for the running of the SMSF. The Trustees are the individual members i.e. You! Each member has to be a trustee of the SMSF on a Director of the Corporate Trustee of the SMSF.
This means that the Trustees will need advice to ensure that they are investing in the right areas and not investing in assets that they should not be investing in i.e. holiday homes which they would use for holidays and rent out at other times. That is a no no!
If you feel that you would have greater control and greater transparency in the decision making process of investing in your future in a low tax and asset protective environment, then a SMSF could be the fund for you.
Ideally, a SMSF with a maximum of 4 members should have a starting balance of no lower than $150,000 to $250,000 depending on why you wish to move to a SMSF and what your investment goals are.
A further attraction in creating a SMSF is that, undercurrent legislation, a SMSF can borrow to purchase a Direct Property and also gear in Direct Equities which allows the fund to expedite growth in a specific asset class under a tax efficient environment.
Such borrowings are under what is called a “Limited Recourse Borrowing Arrangement” which means that the loan monies can only be retrieved from the sale of the asset that the loan was used to invest in.
What will the cost be to me?
The cost of running a SMSF would be the ongoing tax return and audit fees which can vary in costs but generally, the range should be between $2,000 – $3,500pa.
There are some Accounting Practices that may charge a much higher fee.
In addition to this fee, there is the ongoing service advice fee for investment if you engage a financial planner such as FOFM.
This ongoing fee would vary, depending on the range of services required, and the asset classes that investments are made to.
Alternatively, such a fee can be an ad-hoc fee based on an hourly rate for a half-yearly, annual or bi-annual review meeting depending on your needs.
In addition to this, the other costs are the cost of investing in various assets, such as borrowing costs in Direct Property, initial creation of the SMSF Deed, Corporate Trustee and if borrowing, a Bare Trust and a Corporate Trustee.
There would also be a Stock Broker fee for each stock that is bought or sold.
Other costs could be, Life Insurance premiums, tax on earnings etc.
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