Why SMSFs are outpacing industry funds

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We are strong proponents for setting up a self-managed super fund to support your wealth-creation goals – as long as it’s the right fit for you. If you’ve been toying with the idea or want to know what to expect from an SMSF compared to a standard industry fund, we have all the details.

The ATO has a helpful – if not bland – guide that compares some of the basic elements of SMSFs against other super funds. It will give you a surface-level understanding of how SMSFs differ from industry funds, and the amount of time you will need to factor in when managing your own fund.

Who controls the investments?

While most standard funds will give you a slice of freedom when it comes to choosing where you want to invest your super, at the end of the day it’s the portfolio manager who has the final say. For example, you won’t be able to choose the specific asset classes to invest in if you only have an industry fund.

Conversely, a self-managed super fund is all about freedom. It’s one of the top reasons why so many Australians switch to an SMSF. The ATO puts it very succinctly: “Trustees develop and implement the fund’s investment strategy and make all investment decisions.”

 Managing insurance

Insurance is generally an afterthought for Australians with a regular super fund. Most funds offer insurance that covers their members and it often costs less because large funds get a discount on their premiums. However, this basic level of cover may not be adequate for everyone – and many funds have been caught selling ‘junk’ policies through super.

As an SMSF trustee, everything is once again in your hands. You are in charge of purchasing insurance for members, which means you can select the policy and level of cover that is most suitable for all of your needs.

Your responsibilities

There’s a reason many Australians never think about their super until they are approaching retirement age. With a standard industry fund, it’s a set-and-forget savings strategy – one where all the risk is held by the fund’s professional licensed trustee.

But with an SMSF, it’s expected that you will already have a thorough knowledge of tax and super laws, and all compliance risks are borne by you as the trustee (or director, for corporate funds). That means the buck stops with you, so you need to ensure your SMSF always remains compliant.

Pros and cons of having an SMSF

“The truth for most Australians is that retail funds have, on average, been performing poorly in recent months and years,” says Daran Thomson, Managing Director at Hallmark Consulting. “With experts describing SMSFs as a standout asset to beat inflation, it’s no wonder we’ve had so many clients coming to us after losing large chunks of their super in industry funds – because they want to finally take control of their retirement savings with a self-managed super fund.”

Aside from outpacing inflation, here are some of the biggest benefits of setting up an SMSF, as well as some minor drawbacks to consider.

Pros

  • A huge diversity of investment options at your disposal.
  • Access to concessional tax rates.
  • More transparency than with a standard super fund.
  • Ability to consolidate super assets.
  • Flexible estate planning.
  • Add value to your super through SMSF property investments.

Cons

  • You need to set aside approximately 8 hours per month to run an SMSF (or 100 hours every year).
  • It’s your obligation to stay up to date on any changes to super laws and organise independent audits.
  • Residential properties can’t be purchased through your SMSF if you – or anyone associated with a member of the fund – plans to live in it or rent it out.

If you have the time and money to run your own SMSF, it just makes good financial sense compared to having a traditional super fund. Contact Hallmark Consulting or call 1300 135 295 to find out how we can help you get set up and grow your retirement wealth.