Managed Funds versus Self managed Superannuation Funds (SMSF)
Summary of an article by John Wasiliev in the Financial Review – Flexibility is the key advantage of self managed funds.
Most successful DIY funds are run by member trustees who are experienced investors who chose a DIY fund to exploit their skills. One view is that unless you are intending to invest in realty from which to run a small business or a farm, you should think carefully about using a DIY fund. There are also some exotic investments available to a DIY fund not available via a managed fund- e.g. collectables works of art, shares in private companies.
If you can’t identify any special investment advantages, a DIY fund should be the last option to be considered. Flexibility must be an attraction but the duties and responsibilities of being a trustee are onerous. All administrative functions can be outsourced but you as trustee will still be liable to get the requirements correct or face a tough penalty regime.
Likely costs will include (April 2009) - $2000-$3000pa admin costs (tax return costs may be extra), audit costs of $400- $500pa, trust review costs of $400-4500 pa and $200-$300 for an actuarial review.
Clearly the greater the funds in the DIY fund the less the cost per investment dollar.
The anticipated diversification and improved investment return will need to outweigh the onerous administrative and other responsibilities of being a fund trustee.
(The article did not mention that the minimum viable investment into a DIY fund is generally accepted as being in the vicinity of $250,000.)
Doug Allen in the Moneymaker column of the Australian of 2/5/2009
raises the following questions in his article “Rewards and Risks in taking control of you Super”
- Do you have time to manage the fund?
- Even with professional help you are ultimately responsible for decisions as trustee on all tax, superannuation and trust law
- Are you happy to address the onerous record keeping and reporting obligations including preparation, documentation and adherence to your investment strategy.- Penalties can be significant
- You will be responsible for reviewing investment options, and potential replacement options... You will need to understand your goals, the expected (satisfactory) rate of return of the fund and the level of investment risk each fund member is happy to take.
- If a husband and wife fund, where one party is sick/ deceased, is the other party experienced, capable and willing to deal with all the issues above?
Comment
For some people, a SMSF is ideal