Large funds trying to bridge gap with flexible investment options
SMSFs can be very well suited to those prepared to put in the time and effort.
Centric Wealth chief executive Phil Kearns says that while many SMSF trustees are proficient at managing their strategy, compliance and investments, others may not appreciate the complexities involved or the implications of the role of being a trustee. And those thinking of starting their own fund have to be careful with some of the "low cost" administrators.
Natasha Panagis, Centric Wealth's technical specialist, says some SMSF administrators quote a low "headline" fee, but then hit the trustee with a range of fees for various products and services.
A decent-sized super balance is needed to keep the fees of an SMSF competitive with the best of the large funds, which have costs as low as 1 per cent of the account balance. Panagis says the minimum needed is $500,000, plus other assets outside superannuation.
The potential disadvantages of SMSFs compared with a large superannuation fund include life insurance cover. Large funds are wholesale buyers of life insurance, which keep the costs to members low. Also, large funds usually have automatic acceptance. Buying life insurance as an individual usually means a medical examination. And, if accepted, it could be expensive.
Also, trustees of SMSFs are outside the federal government's compensation scheme for super. If the loss can be shown to be the result of theft or fraudulent conduct, all members of large funds are levied to compensate those members of large funds who lost money.
SMSFs are not members of the Superannuation Complaints Tribunal. If there is a dispute among dependants over the distribution of death benefits, for example, recourse is through the legal system.
If tempted to start an SMSF, have a look at what large super funds offer. They are trying to stem the flight of members to SMSFs by providing do-it-yourself investment flexibility. Many large funds allow members to buy and sell Australian shares, or invest directly in term deposits and unlisted managed funds.