Strategy 31/08 – Rich rewards with SMSF growth

The new adviser

For a number of years, self managed super funds (SMSF) have been considered part-time work for many financial planning professionals across Australia.

Looking back to 1994, the start of the current SMSF boom, there really was no reason to take these funds too seriously. After all, at that time there were only 55,000 funds with $13 billion under management,mostly in cash for that matter.

It would have been a brave business decision to commit a significant quantum of business resources to this sector.

From Change comes a boom

In 1994 the government made a legislative change that started the meteoric rise of SMSFs in the Australian funds management landscape. As is often the case the change was simple. Simple in terms of allowing retiree members of a super fund to continue holding their super benefits in a super fund rather than requiring them to be rolled over to an approved deposit fund, deferred annuity or other rollover fund.

In fact when you think about SMSFs in the pre 1994 days, it is surprising that anyone put their super benefits into these short term funds. After all, if you were a small business professional, no sooner would you have commenced the fund than you would be in retirement having to wind the fund up. The Occupational Superannuation Standards Act ('OSSA') requirement for a trustee to eject any retired member from a super fund acted as a brake on the development of SMSFs.

The introduction of the Superannuation Industry Supervision Act, however, reversed this ludicrous situation. With effect from 1 July 1994 the trustee of a SMSF was, amongst other options, able to:

continue to offer membership to retiree members of the fund;

bring four members of the family, often different generations into the fund;

accept contributions from retiree members up to two years after their retirement as long as at the time of making the contribution they were under age 65;

offer a multitude of pensions in the post retirement phase including an allocated pension, a complying pension and a flexi pension;

enable members of the fund to attend to their estate planning via the fund through a combination of lump sums or pensions to beneficiaries;

acquire listed shares and business real property directly from a member either by way of a contribution or through a direct sale;

provide a vehicle for member asset protection purposes.

Suddenly the clunky old DIY fund became a 'family retirement income vehicle'.A vehicle allowing members of the same family to aggregate their superannuation savings for the purposes of enabling the members to take a concessionally taxed income stream in retirement as well as generating a tax-effective lump sum or income stream for their dependents in the event of their death. It was the best of all possible worlds.

What was once a short-term superannuation vehicle had now become a multi-generational investment powerhouse overnight.

And How They Grew

As a group we have not been shy in talking about the rapid growth of the SMSF sector and we don't feel there is any need to be shy.

We are witnessing the birth of an exciting and significant new sector of the funds management industry. In fact we are in the beginning of 'tornado' growth in this sector.

Just look at the growth in SMSFs over the past five years. From $13 billion under management in 1994 we find, according to APRA statistics for December 1999, that the total amount of funds under management sits at $59 billion.

On future growth finance industry consultant Rice Kachor Research has projected that the SMSF sector will grow to a staggering $203 billion by 2009. If you are serious about SMSFs check out their website -www.rkr.com.auand compare the growth of SMSFs against that of corporate super, master trusts, life insurance and managed funds. It is nothing short of miraculous. In any way shape or form, this is an area of the economy to be reckoned with.

It's Time to Get Serious

At The Strategist Group we are seeing the emergence of a new breed of professional ( theSMSF adviser. An adviser who lays claim to knowing all there is to know about SMSFs. An adviser who used to be a financial planner but is now a specialist SMSF professional with the ability to plan the retirement destiny of the member's of the fund.

We can no longer treat SMSFs as a part time cottage industry. It is a full time specialist profession with rich rewards and embarrassing growth potential.

<I>The FPA National Roadshow will be touring various chapter locations during September and October 2000. Some of Australia's best financial, tax and superannuation minds will be on the same bill providing knowledge, strategies and common sense practical ideas to implement immediately in your business.

Special low subsidised pricing is available to allow you to bring a number of staff or centres of influence to this special event which is the first National Roadshow of its type. Contact The Strategist Group on 02 9955 2955 to reserve your place. Seating is strictly limited.