Self-Managed Super Funds – What to Ask Your adviser

There is no one correct answer as to whether a self-managed superannuation fund (SMSF) is the right structure for your retirement savings – to a certain extent it does come down to personal choice. There are, however, certain broad issues that you should consider before setting up an SMSF.

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Back in 2012, the Australian Securities and Investments Commission (ASIC) set up an SMSF taskforce to look at risks in the SMSF sector. In April 2013 they published a report that summarised their findings. You can download the full report here.

Within the report, ASIC outlined a checklist of questions that would-be SMSF trustees should ask their financial adviser prior to making a decision. That checklist is summarised below:

Questions to ask your adviser

Role and obligations of SMSF trustees:

  • Does the investor adequately understand what it means to set up and run an SMSF?
  • Does the investor understand the role and responsibilities associated with being a trustee of an SMSF? Do they understand the consequences of getting it wrong?

Suitability of an SMSF structure:

  • Does the investor adequately understand the cost and time required to run an SMSF?
  • Does the investor possess the financial literacy skills required to run, or be involved in running, an SMSF?
  • Has the investor considered SMSF succession-planning issues? This may be an issue for older investors.

Risks of an SMSF structure:

Does the investor understand the basic risks associated with having an SMSF? For example, does the investor understand:

  • their inability to access a Government compensation scheme
  • their reduced access to dispute resolution bodies
  • the risk of not having insurance, or having inadequate insurance; and
  • the risk of some SMSF membership structures?

Another option when it comes to your superannuation is to compare super funds. You can compare funds to  get an understanding of the right combination of past performance, fees and features with Canstar.

The following table contains details of the superannuation funds rated by Canstar based on someone aged 40-49. This table has been sorted by one-year performance (highest to lowest)

Please note that the performance information shown in the table is for the investment option used by Canstar in rating of the superannuation product.

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Investment strategy:

  • Does the investor have the necessary skills and expertise to make the investment decisions for the SMSF? If not, does the investor have a plan to outsource these skills (e.g. by getting professional investment advice)? Does the investor understand the costs of importing these skills?
  • Does the investor understand the benefits of investment diversification and the risks associated with investing all their superannuation in a single asset class (e.g. real property)?
  • Will the investor’s investment strategy deliver the returns required to adequately fund their retirement?

h2>Switching from an APRA-regulated superannuation fund:

  • If the investor is moving from an APRA-regulated fund to an SMSF structure, do they understand the advantages and disadvantages of such a switch?

Alternatives to an SMSF structure:

  • Are there alternatives to an SMSF structure that would meet the investor’s needs? If so, have these alternative structures been properly explained to the investor?

A SMSF can work very well for some investors – just ensure that you have done some research first and that you understand the responsibilities and risk – as well as the potential reward – involved.

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