Large funds trying to bridge gap with flexible investment options
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.
Frequently Asked Questions about this Article…
A self-managed super fund (SMSF) can be very well suited to people who are willing to put in the time and effort to manage investment strategy, compliance and administration. Centric Wealth notes many trustees do this well, but others may underestimate the complexities and responsibilities involved in being a trustee.
To keep SMSF fees competitive with the best large super funds you generally need a decent-sized balance. The article notes a minimum of about $500,000 in super, plus other assets outside superannuation, to make SMSF costs more competitive.
Yes. Some SMSF administrators advertise a low ‘headline’ fee but then charge additional fees for various products and services. It's important to check the full fee schedule rather than focusing only on a low advertised price.
Large super funds can have costs as low as about 1% of the account balance. To match those low overall costs, an SMSF generally needs a substantial balance; otherwise large funds may be cheaper after fees are taken into account.
Life insurance can be a disadvantage for SMSFs. Large funds buy life insurance wholesale and often offer automatic acceptance, keeping costs lower. Buying life insurance as an individual (or via an SMSF) can require medical checks and may be more expensive if accepted.
No. Trustees of SMSFs are outside the federal government's compensation scheme for super. By contrast, members of large funds can be levied to compensate other members who lose money as a result of theft or fraudulent conduct.
SMSFs are not members of the Superannuation Complaints Tribunal. If there is a dispute among dependants over distribution of death benefits, recourse is typically through the legal system rather than the tribunal.
Yes. The article recommends looking at what large super funds offer because many now provide do-it-yourself investment flexibility to retain members. Large funds often let members buy and sell Australian shares or invest directly in term deposits and unlisted managed funds, which may reduce the need to set up an SMSF.
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