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…
SMSFs can be a good option — but mainly for investors who are prepared to put in the time and effort. Centric Wealth’s CEO Phil Kearns says many trustees manage strategy, compliance and investments well, but others may not appreciate the complexities and responsibilities of being a trustee.
According to Centric Wealth’s technical specialist Natasha Panagis, you generally need a decent-sized super balance to keep SMSF fees competitive — she says the minimum needed is around $500,000, plus other assets outside superannuation.
Not always. Large funds can have total costs as low as about 1% of the account balance, so an SMSF only becomes cost-competitive once your balance is large enough. Factor in administration, advice and transaction costs when comparing.
Watch out for low 'headline' fees that are later supplemented by a range of extra charges. Natasha Panagis warns some administrators advertise a low initial fee but then levy fees for various products and services — always check the full fee schedule.
Large funds are wholesale buyers of life insurance, which helps keep costs down and usually offers automatic acceptance. By contrast, buying life insurance individually or via an SMSF often requires medical underwriting and can be more expensive.
No. Trustees of SMSFs are outside the federal government's compensation scheme for super, and SMSFs are not members of the Superannuation Complaints Tribunal. If there is fraud or theft, large funds levy members to compensate affected members; for SMSFs, dispute resolution can mean going through the legal system.
Many large funds now provide DIY investment options so members can buy and sell Australian shares or invest directly in term deposits and unlisted managed funds, giving similar hands-on control without the full responsibilities of an SMSF.
As an SMSF trustee you’re responsible for strategy, compliance and investment decisions. The role involves legal and administrative complexity, exposure to fees and insurance gaps, and limited external protections — for example, disputes often require legal action rather than a tribunal route.
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