Con­trol­ling your own su­per fund no walk in park

The Sunday Mail (Queensland) - - NEWS -

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: noel@noel­whit­taker.com.au

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