Fri 03 Aug, 2018

The Pros and Cons of Managing an SMSF

Managing an SMSF is something more and more Australians are opting in for. In fact, according to the ATO, the number of SMSFs has been growing at almost 6% annually from 2012 - 2016. However, it’s important to note that a self-managed super fund may not be for everyone.

While an SMSF can be a great way to grow your nuts for retirement, it can also be risky, time-consuming and costly. That’s why it’s important to be aware of the responsibilities and risks of managing an SMSF first. In this blog, we’ll go through the pros and cons of managing your own super-fund. Please remember, Squirrel does not provide this information from an advisory point of view. If you have questions about whether an SMSF is right for you, please speak to an expert financial adviser.

The Pros of Managing an SMSF

1) Total Financial Control

With a self-managed super fund, there is no fund manager going wild with your money. You (and any other SMSF trustees) have complete control over the fund. This means you are in charge of your super and what it invests in. This is a huge advantage to those who have certain assets they’d like to invest in - such as property or collectibles. Even if you don’t have a certain investment asset in mind, an SMSF may be advantageous to you if you’re looking to start taking control of your super.

2) More Freedom to Invest

The Pros and Cons of Managing an SMSF | Squirrel Super

Having full financial control of your super means you will have more freedom to choose your investment assets. With an SMSF, you and any other members have the ability to choose from a variety of assets to invest in. This can be anything from residential property, commercial property for your business, gold and silver, cash term deposits, Australian and International shares, and even cryptocurrencies. As long as your investment asset passes the sole-purpose test, and your SMSF stays compliant with the ATO, you will have much more flexibility in your investment choices.

3) Save on Fees

With a Squirrel SMSF, you can potentially save thousands of dollars in fees over your lifetime. This is because instead of paying a percentage of your super to a fund manager like you would in an industry fund, we have a flat-rate admin and setup fee. This means, as your super balance increases, your fee does not. As a result, the larger balance you have in your super, the more you can save in fees by switching to a self-managed super fund.

4) Tax Benefits

When you’re managing an SMSF, you have the opportunity to take advantage of certain super tax benefits. For example, super is taxed at 15% income tax, and 0$ GST (in retirement). So your SMSF investments assets, such as property, can enjoy a nice tax break on the income they generate for your retirement!

5) Consolidate Super with Family

The Pros and Cons of Managing an SMSF | Squirrel Super

With an SMSF, you have the ability to consolidate your super with up to three other members - such as a partner, spouse or other family member. This allows you to create a larger total balance, opening your super up to new investments opportunities! If you choose a Squirrel SMSF, you’ll also save on fees as our SMSF setup and admin costs are per fund, not per person.

 

The Cons of Managing an SMSF

1) Time-Consuming

Managing an SMSF can be very time-consuming. As an SMSF member, you are responsible for conducting research to find suitable investment assets for your retirement strategy. It is also your responsibility to manage the performance of your investments.

Of course, different assets require different levels of attention and time. For example, a property investment will be very time consuming in the beginning, as you’re buying the property and securing tenants. But once you start generating a passive income from your property, you should hopefully have minimal day-to-day involvement with it unless something goes wrong. On the flip side, forex trading or cryptocurrency investments will require a lot more attention on a regular basis, as you won’t want to miss key trades. It’s important to be educated and prepared for the time required with each investment asset.

2) Investment Knowledge Required

If you don’t have adequate investment knowledge or time to operate your fund, managing an SMSF can be risky. That’s why it’s important to conduct thorough research on all investment assets within your strategy to fully comprehend the risks involved. It’s also wise to speak to a financial adviser before investing in anything.

3) Additional Costs to Consider

The Pros and Cons of Managing an SMSF | Squirrel Super

Managing an SMSF can incur additional costs beyond the setup and admin fees. In many SMSFs, accounting and auditing services are extra costs. However, with a Squirrel SMSF, these services are included in our flat-rate admin fee so you won’t get any nasty surprises.

There may be however additional costs to consider for each investment type. For example, property investments will incur legal fees and stamp duties. Depending on which platform you trade forex or shares on, your SMSF may also incur buy/sell fees.

Something to be aware of is that if your SMSF is not compliant with the ATO’s laws and regulations, then you could face costly legal fees and penalties.

It’s important to ensure your SMSF will have a balance large enough to maintain its viability as additional costs can have an impact on your balance and retirement goals.

4) Not Eligible for Government Compensation Schemes

SMSF are not eligible for compensation under superannuation laws if they suffer loss as a result of fraud or theft. That’s why it’s important to consider purchasing insurance cover for your SMSF and its investments. This way your super balance and retirement goals can be protected.

5) Subject to Compliance-Based Regulations by the ATO

SMSFs are regulated by the ATO and require regular compliance. As a result, SMSF members are responsible for making sure their SMSF is up to date with the laws and regulations. SMSF members who fail to comply with the ATO’s laws will face costly legal and financial penalties. This could deplete much of their retirement savings and even result in civil or criminal sanctions.

As part of Squirrel’s fixed administrative fee, you will receive annual compliance of your SMSF.  You will also receive unlimited customer service, so if your SMSF is ever be audited by the ATO, the experts at Squirrel will work with you every step of the way.

It’s important to note that choosing to manage your own super can be a big decision. While there are many benefits, there are also many responsibilities and costs to consider. And it can get even more time-consuming and risky depending on your investments.

If you’re interested in learning if an SMSF is right for you, take our quiz to find out!