Your SMSF. Your Choice
19 Mar 2013
Self managed superannuation funds (SMSF) continue to enjoy significant growth, but why? Is it just so investors can control their own investment decisions or is there more to it?
From my experience investors are establishing SMSFs due to a number of factors, including:
- Control over investments
- Involvement and connection with my money
- Reduce fees
- Choice and flexibility of investments, strategies and providers
- The 'I just want one' factor
- Investors not understanding their current fund and options
- Business purposes
- Unlisted investments
- Family matters
Choice is a powerful force for many of us as it arouses control and influence. This is why we see some investors choose to hold their entire SMSF savings in cash and term deposits. Others choose to invest in business premises, or direct stocks or wholesale funds. All of these options are viable in isolation, but need to be addressed as part of the overall strategy.
For example, gearing a property in a SMSF is a potential strategy, but if an investor starts this strategy too late in life or fails to use the power of regular contributions to build real equity in the asset, then the opportunity is potentially fraught with danger. There are also cash flow matters to resolve (but this discussion is for another time)!
Having your own choice as to the preferred Trustee arrangement can also be a powerful motivation for people in second marriages, de facto relationships, or those who have second families. Certainly, some 'public offer' funds have limitations in the areas of estate planning that may be very important for these people.
On the other hand, too much choice inside a SMSF structure can be an uncomfortable experience for some investors. They become blinded as to what is a suitable path to take but feel they are compelled to operate in a do-it yourself (DIY) manner. This can lead to knee-jerk decisions which may cause thousands of dollars of damage. Just because one has choice does not equate to sound financial management.
One of the huge appeals of operating an SMSF is that you have the right to choose your preferred suppliers. These suppliers of expertise and advice can range from investment specialists, SMSF advisers and accountants. Importantly, as long as they know you, your strengths and when assistance is required, then it can pay substantially to have the right team by your side.
Before I finish, one thing I have seen is that as time passes people may become unable to operate their SMSF or find the administration task too onerous, due to travel, health or changing priorities. Some Trustees will continue to operate their SMSF (perhaps under a different framework) while some investors choose to close their SMSF while keeping control and involvement in an alternative super fund that operates in a similar way to SMSFs. While this may be years away for many investors, it is comforting to know choice and freedom is still largely available across investments, costs, estate advice and personal involvement.
In the daily activities of advising SMSF clients, my job as a financial adviser is to balance the areas of investment strategy, determine the relevance of new investment offers, provide asset allocation advice, manage costs, consider longevity matters, examine the associated superannuation and tax strategies, Centrelink rules, the preferred estate plan and finally overlay these choices with the priorities of each and every client.
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