An Interview Q&A with Peter Hallen – Skybridge Financial Planning
If I were thinking about setting up a SMSF, where should I turn for advice and help?
I would definitely seek advice from an Adviser who is accredited to provide advice on Self Managed Super Funds. However before doing so its worth doing a bit of background research yourself and the Australian Tax Office website is a good source of information for those thinking about it.
Is it an expensive or complicated process?
There are costs associated with setting up a fund and these can depend on what sort of trustee structure you choose. There will also be ongoing fees depending on the extent of the help you seek in managing the fund eg. Accountant, Financial Adviser. Any complication can be largely removed by employing appropriate experts to assist in the setting up and ongoing administration of the fund. As trustee of the fund you do however need to be mindful of the rules around which the fund must be operated.
What advantages can it offer compared to staying with an industry or retail fund?
Generally the advantages of a SMSF hinge around control and choice.You have more of each if running your own fund, as long as you comply with regulations and the fund is operated for the sole purpose of building wealth for retirement You control the asset allocation, tax strategies and insurance options while having the flexibility to choose where your super is invested.
What are some of the complications that I would need to think about?
You need to keep up to date with the relevant legislation, ensure your fund complies with certain rules and deadlines and that your trust deed and investment strategy is kept up to date. Fortunately, whilst the responsibility lies with you, you can utilise professional services to take on the administrative function.
What about risks?
Risks can include:
– If your fund was found to have breached certain rules, there are penalties that can be applied to you as trustee.
– There is also the risk that as trustee you make the wrong investment decisions. This can be minimised by seeking professional investment advice which assists you in making a more informed decision about your investments.
– You don’t have access to the Superannuation Complaints Tribunal. Any disputes must be heard by the courts which can become expensive.
What sort of balance should you have in super before kicking off a SMSF?
There is a general view that due to the fixed cost nature of administration annually, that in order to make a SMSF fund comparable to industry or retail funds, it needs to hold about $200,000 in assets, that of course ignores the other benefits associated with managing your own fund. However with the advent of more accessible investment products and advanced administration systems meaning lower cost of administration, initial balances can be much less allowing earlier participation and control over your own wealth creation.
Are you ever too young or too old?
Although a member can be under 18 years of age a trustee of the fund cannot, other than that, it really gets down to your capacity and desire to take on and continue to maintain control over the fund. If you aren’t interested in learning and understanding how to manage the fund and make decisions about the investments or you see it all as a burden on your time, then SMSF isn’t for you.
When is property a good idea in n SMSF?
A good question. It can be good as part of a well diversified portfolio. The simplest way to include property investments in the portfolio is via property trusts or managed funds specialising in property. A single direct property is not necessarily a good idea in this respect as it generally becomes one dominating asset within the portfolio depending on the total super fund value and this can negate the benefits of diversification. However, for business owners it may be of benefit for them to buy the business property through their super fund and the business rents the premises from the fund. The business becomes a contributor to the future retirement benefits of the member’s of the fund. There are strict rules around investment in direct property by the fund, particularly where it is potentially from related entities or there is borrowing involved, so it is important that specialist advice is sought before proceeding with such an investment.
Anything else you can think of that would be a good guiding point?
It’s a good idea to consider your estate planning options in conjunction with setting up the fund to ensure member’s benefits are paid out in line with their wishes on death. This is important as super death benefits don’t automatically become part of ones estate.Seek professional legal advice.