Q: My friend has a Self-Managed Super Fund (SMSF) and she is regretting the decision. She has found her role as a trustee complex, and she admits she did not understand what she was getting into. What should I be considering before I establish a SMSF?  And what should my friend be considering?

A:  A SMSF can be like a bad tattoo, it was a good idea at the time but you regret the decision for a number of reasons. Our circumstances and tastes may change over time but like a tattoo, a SMSF will last forever unless removed. This can be a costly and possibly painful process and can leave scars.

How do I make the right decision?

For many people, the decision to open a SMSF is made without receiving adequate advice or understanding what is involved. Commencing a SMSF is a big decision in its own right, and should be considered as part of your overall retirement goals and objectives.

The amount of funds required to establish a SMSF has been debated and the relevant regulators have set minimum benchmarks. Clients with $400,000 to $500,000 in superannuation can achieve some excellent outcomes by commencing a SMSF, and taking control of their retirement savings. In a recent Blog Post, Andrew Heaven outlines the key reasons you should consider before commencing a SMSF – click here.

What happens if your friend made the wrong decision?

This is dependent on her circumstances and it is hard to say.  If she is not maximising the benefits offered by it, she is best to seek advice.  However, if the costs outweigh the benefits, then she may have no other option to close the fund.

To increase the balance of the fund, your friend could include her spouse, relative or trusted friend as a member, spreading the operating expenses across more members. For more information about the benefits of a Family SMSF, check out a recent blog click here. However, be warned, if your friend is finding the role as trustee too complex and does not understand what she is doing it may be in her best interest to close the fund to avoid the Australian Tax Office declaring the fund as non-complying and risking her superannuation retirement savings.

What are my friend’s options?

Closure of the fund might be your friend’s best option and seeking advice to determine a suitable retail superannuation fund to move to is a priority. Some people may seek advice from their accountant to close the fund and recommend a suitable retail superannuation fund. Be mindful that accountants must be licensed under the Australian Financial Services licensing regime to provide this advice. This means the advice needs to satisfy the best interest duty and is documented within a written Statement of Advice.

Are there any other alternatives?

If your friend still wants to retain the fund, can warrant the costs involved but does not want the responsibility of being the trustee. She could consider a small APRA fund (SAF).

A SAF is an alternative to an SMSF and it gives you the opportunity to continue to retain control of your super by having your own fund, without having to shoulder the burden of trustee responsibilities.  These responsibilities are taken on by a professional trustee company.

This could be a solution but accessing the services of a professional trustee company will come at an additional cost to the fund. Therefore this may not be a viable proposition and closure of the might be the only option available.

So what is next?

If your SMSF is a bad tattoo, then it might be time to do something about it. Seeking advice financial adviser who specialises in SMSF to determine to close the fund or investigate alternative options is the best way forward.