Controlling your own super fund no walk in park
SELF-managed super funds appear to be one of the main targets of Labor’s attack on the refund of franking credits.
As I have said previously, it is easy to get around the proposed changes in the rules – all you need to do is cash in the Australian share component of your self-managed fund and transfer that amount into a retail or industry fund choosing the “Australian shares” component. It may even be time to roll your entire self-managed fund into a retail or industry fund.
So let’s consider the question of whether you should keep running a self-managed fund at all. Certainly, having your own fund provides extra flexibility, enabling you to invest in a much wider range of assets – such as direct shares, unlisted international funds and property syndicates – but from my experience I can state unequivocally that many people running their own funds would be better off having one of the big funds do it.
Running your own super fund is not as simple as it sounds. It involves three major jobs: administration (doing the paperwork), investment (deciding where to place the money) and insurance (arranging appropriate cover for your circumstances).
If you can handle these tasks with ease you are well on your way, but there are five major factors that should influence your decision:
1. The fund must have assets of at least $200,000. If it does not, the set-up costs and annual expenses are almost certainly not worth the exercise.
2. Your work situation must make it practicable for you to have an SMSF. If you work for a major company you may not be allowed to transfer your balance in the employer’s fund to your own fund. If your main fund is a defined benefits fund, it would be impossible to transfer your balance – defined benefits funds don’t work like that. Self-employed people, or those with large amounts rolled over, are best suited to start selfmanaged funds.
3. You must have the time and the skills to handle the administration, investment and insurance. This need not be a difficult job if you hire good people to do the work. Your accountant could do all of the bookwork and, if your self- managed fund invests mainly in managed funds such as share trusts, you and your adviser could decide which funds to use.
4. You must be the type of person who understands the importance of carrying out your legal responsibilities. There are many decent and competent people who run small businesses efficiently but work so hard at their business that they ignore or forget about statutory requirements such as having meetings and keeping detailed records. If you are like this, and want to run your own superannuation fund, contact a company that specialises in administering self-managed funds to do it all for you. Your accountant or financial adviser will be able to recommend one.
5. You must have a plan for what happens if the person running the fund becomes incapacitated. If the fund members are a couple, typically one person does all the work because they enjoy doing it, and the other one would rather be doing something else. Of course, this can cause enormous problems if the person who handles the fund becomes ill or otherwise incapacitated, and cannot make the decisions any more. You should consider how to handle this situation when you set up the fund.
In summary, you should not start your own fund just because the sharemarket is down and you think “I could do better myself”. Taking control of the investment decisions for your life savings is a massive responsibility and making mistakes with your own money while you are learning could cripple you financially. To run your own fund you need to have a good track record with investing, and be able to take care of all the other aspects outlined in this article. A selfmanaged fund is most suitable for high net worth individuals who want to run their own race and have the skills to do it. Noel Whittaker’s advice is general in nature and readers should seek their own professional advice before making any financial decisions. Email: firstname.lastname@example.org