Q We have been debating whether to set up a Self Managed Superannuation fund (SMSF) for myself and my wife.  We have a combined Superannuation balance of $423,000.  We are 52 and 49 respectively.  We would prefer to get advice on where to invest into the future.  We don’t wish to buy property within the fund and expect we would invest in Shares, Term Deposits and possibly managed funds.  We get mixed messages on whether we should establish an SMSF. Thoughts?

A The vast majority of people establish a SMSF fund for 3 main reasons; flexibility and control of investments, a belief that it is low cost to run and for Estate Planning reasons.

There are no shortage of opinions available on whether to set up a SMSF or not.  Here are some key points that you should take into consideration in making your decision.

You do NOT have to establish an SMSF to gain access to Australian Shares or Term Deposits. A number of Industry and Retail funds allow access to both direct equities and a range of term deposits.  The only investment assets that a Public Offer fund cannot accommodate would be Direct Property, Collectables, Private Company shares and “exotic” investments. So unless you are interested in these asset classes you have alternatives to an SMSF to consider.

Many people don’t like paying fees to Super funds to manage their money.  ASIC commissioned actuaries Rice Warner to conduct a study on the appropriate balances you need inside a fund to warrant the cost of running a SMSF.  The study concluded that provided the SMSF trustees were prepared to take on the ongoing administration of the fund themselves, the cost of running a fund in excess of $200,000 was reasonably on par with Industry and other Public Offer Funds.  If the SMSF Trustees required the administration and management of the fund to be handled on their behalf, a balance of $500,000 was considered the minimum.  Note this analysis only allowed for the costs of administration and compliance (Tax etc) and did not include investment or advice costs.

The more involvement you have in the administration and management of your fund, the lower the costs you will pay.  Seriously consider whether you have the time and inclination to manage the fund on an ongoing basis both now and into the future. During the establishment phase there is usually considerable enthusiasm to be involved, but over time that can wane so ensure you consider your likely future level of engagement and the subsequent costs of outsourcing. In the event that you or your partner died, will the surviving spouse be prepared or capable of managing the fund?

Make sure you are aware of the responsibilities you take on. How will you structure your trustees? What is your investment strategy? Who will be the beneficiaries? Mistakes can be expensive so know what you need to know.  The ATO website has excellent resources available for those considering setting up a fund.  www.ato.gov.au

As Trustee, the buck ultimately stops with you, so get advice when you need it. Make sure that whoever you seek advice from is licensed to provide the advice.  Many SMSF trustees assume their accountant can advise them on their fund.  An Accountant can establish a fund on your behalf but they cannot provide Financial Planning advice unless they are licensed to do so.

Beyond tax, areas of advice can include the management of the Trust Deed, advice on changes in legislation, Investment advice and Estate Planning.  Be clear about where you need advice and who is providing it and at what cost. Make sure any advice is in writing and don’t pay for “advice” if you aren’t getting it! If it seems too good (cheap) to be true it usually is.

An SMSF can give you great flexibility and control in managing your Superannuation.  However, this is only advantageous if you need the additional functionality, have the financial resources to warrant the cost and are prepared take responsibility for the fund both now and into the long term.

Follow Andrew on Twitter @AndrewHeavenFP.  This article was originally published in The Australian.