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Q: I am interested in a Self-Managed Superannuation Fund (SMSF) as some of my friends have them in place. I am keen to find out more, but don’t know where to start.  Do you have a simple process that I could follow?

A:  For many clients, the decision to commence a SMSF can be quite complex. The following outlines the steps involved and how an adviser can assist you along with the way.

Start with advice – Is it right for me?

A SMSF isn’t for everyone and you will need to consider all of your personal circumstances and goals before taking the step to commence a SMSF. Taking the time to seek advice could result in you making alternative decisions and/or remaining within your existing fund.

Understanding how a SMSF can contribute towards your retirement goals and objectives is essential. Having a strategic understanding of the bigger picture can be done with the assistance of a financial adviser. A SMSF is an extension of your superannuation planning by taking the next step to have more control over your superannuation.

You can seek advice from a qualified financial adviser specialising in SMSF. Some clients speak to their accountant. However, be advised that your accountant needs to be licensed to provide advice on the commencement of a SMSF.

Understand your role as trustee – What do I need to do?

The role of trustee carries important responsibilities and an understanding of the complexity, time and education required. Not only does the law require the commencement of a SMSF to be in your best interest, and all documented advice should reflect how a SMSF will contribute towards you achieving your goals and objectives.

Before taking the step to commence a fund, a prospective trustee can undertake a free course– click here. The course will ensure that you grasp the basics before commencing the fund. Should you find the role as trustee too complicated and decide not to open a SMSF, then nothing ventured nothing gained. If you decide to take on the role, then your financial adviser can assist you with your ongoing trustee education and knowledge.

Determine your fund’s structure and set it up – What is the cost of getting it wrong?

As part of the advice process, your adviser will determine if an individual or corporate trustee structure work best for you. We would usually recommend a corporate trustee is used and if you need more information – click here.

A SMSF is a form of trust and it has a trust deed which is the rules governing its operation. An essential step in the creation of your SMSF is creating the trust deed. This legal document will be prepared for the fund by a solicitor, and before you sign it, you must understand what is contained in the document. When making decisions about the operation of the fund, you will need to refer to it and follow the rules. Your solicitor and adviser can assist you to:

  • ensure all the required documents are executed and witnessed properly.

Should you fail to execute the trust deed for your fund properly, then it can create problems in the future.

Sign the Trustee Declaration – What does this mean?

As part of this process, you need to sign the Australian Tax Office’s (ATO) Trustee Declaration. The ATO regulates SMSF and the aspects of the role it plays is outlined on the ATO’s website – click here.

This important declaration must be signed by trustees and directors of corporate trustees of a SMSF to ensure they understand their obligations and responsibilities. This means in simple terms that if you make a mistake, you cannot plead a lack of understanding or ignorance to the superannuation and taxation laws.  A copy of the declaration can be accessed by clicking here.

Register your SMSF – With whom and why?

The fund needs to be registered with the ATO. Most importantly, you need to notify the ATO should you change address within 28 days or other elements of the fund (for example, change in trustees, directors of the corporate trustee, members, contact details (contact person, phone and fax numbers) etc).

Establish a bank account and complete rollovers

Before any monies can be rolled into the fund, you need to have a bank account set up. This can be completed by your financial adviser along with the completion of all forms to complete the rollovers into the SMSF. You may not be aware, however strict documentary requirements exist when transferring from a retail superannuation fund into a SMSF.

Create and execute an investment strategy

As the trustees of the fund you will need to construct an investment strategy. By law, every SMSF must have an investment strategy. What’s more, every investment an SMSF makes must align with the strategy.

Your financial adviser can provide you with advice to construct your tailored investment strategy taken into account your attitude to risk and return.  Furthermore, your adviser can make specific recommendations to the type of investments to be held in the fund.

Protect your members

As part of your investment strategy, you’ll need to consider the insurance needs of each member of your fund.  Having sufficient life and total and permanent disablement insurance along with income protection in place is important.

Many clients maintain their old employer superannuation fund to retain their insurance. Your financial adviser can provide you with advice to determine how much insurance is required and whether it is worthwhile to establish the insurance cover with your SMSF.

Manage your investments – Can’t I do this myself?

Your fund’s money will need to be managed in line with the fund’s investment strategy. Many people do this on their own and do not employ the advice of a financial adviser. This is possible, however we often see SMSF’s not being invested in accordance with the investment strategy of the fund and a large amount of cash has built up.

Your financial adviser can work with you to advise on the appropriate investment portfolio and ongoing management. Many of our clients outsource a portion of the funds assets to be managed by our firm, the remaining funds are invested into other assets (such as property, collectables, foreign currency, gold etc) which is aligned with their investment knowledge, experience and expertise.

Operate your fund – Do I need help with this?

Your SMSF must remain compliant with a range of SMSF rules. The day-to-day operation of your SMSF can be a burden for some, and take the shine off having a SMSF. The day-to-day administration of the fund can be outsourced to an administration provider.

Your financial adviser can assist with selecting an administration provider that will meet your needs, and play an important role of overseeing the compliance requirements to ensure your funds ongoing compliance to the SMSF rules.  This ongoing compliance relationship is becoming more common in the market as trustees seek comfort in the knowledge of having this ongoing relationship.

Review and stay up-to-date – What does this mean?

As trustees of the fund it is your role to stay up to date with changing rules and regulations. A relationship with an adviser who is an SMSF specialist can certainly assist in the important area of ongoing advice and compliance.

WealthPartners clients who have a SMSF in place receive a complimentary membership to the Trustee Knowledge Centre Login offered by the SMSF Associations (click here).  As a SMSF specialist, a large amount of our time is spent educating clients about their role and responsibility.  Spending time on compliance matters and being engaged by new clients to address matters that have been reported to the Australian Taxation Office by the auditor of their fund, does keep us busy.

So what is next?

You may consider commencing a SMSF on your own. It is achievable, however working with a financial adviser to guide, educate, advise and facilitate you along your journey in the ways outlined in this article is recommended. If you take greater level of control of your superannuation by commencing a SMSF, it is essential that you get it right and avoid any costly mistakes.