SMSFs not for everyone: HLB Mann Judd

Investors are being urged to carefully weigh up the pros and cons of setting up their own self-managed-superannuation fund (SMSF) before taking the plunge.

HLB Mann Judd Sydney, head of wealth, Michael Hutton, warned SMSFs are not a ‘set and forget' super option.

"SMSFs may offer more choice, control and flexibility, but they also demand more time, effort and responsibility," he said.

"It is not a ‘set and forget' option but one that requires an investment of time and resources in managing the fund. Generally speaking, people should expect to be more involved and engaged with their superannuation when running an SMSF.

"Spending a bit of time thinking about what will be required of them if they establish an SMSF can save people money, time and heartache down the line."

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Hutton offered the following do's and don'ts list to help investors decide it an SMSF was right for them:

Do…

• have a good reason to establish an SMSF - don't just do it on a whim.

• get advice on the obligations of running a fund and its appropriateness for your circumstances.

• consider having a corporate trustee. The benefits almost always outweigh the costs.

• think through who should be members — a maximum of four is permitted.

• have a well-thought-through investment strategy.

• purchase fund investments in the correct name, that is, the trustee/s.

• use the contribution limits each year — otherwise the opportunity is lost.

• keep administration tidy and up to date.

• lodge tax returns on time — the ATO dislikes late lodgers. This is usually its first indication that all is not well with the fund and its management.

• take advantage of the greater flexibility — for example, whether to start pensions or not and to make investment choices.

• make use of ancillary benefits of an SMSF such as reviewing insurance options.

• keep it reasonably simple. Complication often does not enhance returns. For example, do have one bank account, not many, and one holder identification number (HIN) for shares.

• integrate the SMSF with your business in terms of ownership of commercial property and rolling over of proceeds upon selling the business.

• expect to be more engaged with you superannuation and more involved in what is happening. This means investing time and resources in managing the fund.

Don't...

• start an SMSF with the expectation the money can be accessed sooner than otherwise allowable. The same accessibility rules apply to SMSFs as other larger funds.

• have an expectation of getting a personal benefit from the superannuation investments — for example, a wine buff wanting to buy wine or an art lover buying art. Some of these things can be done, but the complication involved can detract from the effectiveness of the fund.

• expect to buy assets that can be used personally, such as a holiday house or a unit for children.

• be lazy with investments, for example, just leaving funds in a cash account. Make the fund work for you.