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SMSF viability dependent on key factors

SMSFs may be a great structure to help facilitate the growth of clients’ superannuation balances, however, deciding whether they are a viable option should be determined by checking off several important factors and not focusing just on costs.

“My answer to clients is [an SMSF is a viable option] when the SMSF option provides investment choices and strategic options that normal industry or retail funds cannot provide,” Omniwealth senior financial planner Andrew Zbik said.

“For example, using your super to borrow money to purchase an investment property, using your super fund to facilitate a member loan or limited recourse borrowing arrangement, or using your super to purchase business real property, which a company you own or operate will lease the premises for the purpose of conducting business.

“[Also] where you can demonstrate that the ongoing administration and investment management fees of an SMSF are less than an industry or retail super fund, and to purchase shares in a private company, however, there are very strict rules on how this can take place.”

It was also important potential trustees were confident the time and cost of establishing and maintaining an SMSF could provide clear benefits that could not be achieved by using an industry or retail super fund, Zbik said.

“If they are considering establishing their own SMSF to invest their superannuation monies in an identical investment strategy as their industry or retail fund, it really does not make sense to open an SMSF,” he said.

“In my time as a financial planner, I am observing that the age of clients seeking to open their own SMSF is becoming lower.

“Of all the new SMSFs established in the last quarter, 29.8 per cent had members between the age of 35 to 44, and 32.5 per cent had members between the ages of 45 to 54.”

In March, the ATO reported the median balance of assets in an SMSF was $602,629.

“ASIC has been very clear that they believe establishing an SMSF with a balance below $200,000 is not in the members’ or clients’ best interests,” Zbik said.

“A couple in their early 40s with a combined balance of $600,000 who wish to establish an SMSF and pursue a high-growth investment portfolio are likely to pay $2500 for accounting and audit fees, plus additional investment management costs, say 0.73 per cent, totalling approximately $6880.

“If this same money was invested in an industry super fund high-growth option, the fees would be approximately $4458 for administration and investment costs.

“If the couple take on all the management responsibility for the SMSF and do not outsource the portfolio management to a professional, then the SMSF may be cheaper to operate, not factoring the time and risk of managing all of your own money.”

Omniwealth is an Australian non-aligned wealth advisory group.

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